Reasons To File A Tax Return
Income tax is one of the most common taxes you pay in Canada. It helps pay for the many different programs and services the government offers.
In Canada, individuals file an income tax and benefit return every year to report their income for the year. They do their taxes to calculate the income tax they actually owe and to find out if they are entitled to a refund or if they have a balance owing.
- Income tax and benefit return
- Balance owing
Doing your taxes has benefits. You should do your taxes every year if you want to take advantage of these benefits.
You should do your taxes if you want to:
- get a refund
- begin or continue to receive payments like the goods and services tax / harmonized sales tax credit or the Canada child benefit
- carry forward or transfer unused tuition credits, which will help you pay less tax in the future
- earn registered retirement savings plan contribution room, which means you can save more money in your RRSP account
- Goods and services tax / harmonized sales tax credit
- Registered retirement savings plan
When you must do a tax return
There are several situations when you must do your taxes, including if:
- you have to pay tax for the year
- the Canada Revenue Agency sent you a request to file a return
Tracking The Mileage Deduction
Most food delivery apps DO NOT track how many miles youre driving when youre online. If you dont track them yourself, you will pay more in taxes. You can only use mileage deductions for cars.
There are two ways to track your mileage deduction. If you drive a car, you can choose between either the standard mileage or actual expenses method.
Tracking actual car, truck, and bike expense tax deductions is a more complicated method than using standard mileage. In addition to tracking your business and personal mileage, youll need to track all your car expenses, such as gas, repairs/maintenance, insurance, license fees, parking fees for business, tires, car washing, lease payments, towing charges, and auto club dues. In addition, you can deduct a portion of your car as business use and deduct the depreciation of your cars value. See the page for actual car expenses to learn more.
Which Forms Do You Use To File Self
You will file Schedule C to report your business income and expenses to the IRS. On the Schedule C form, you record all your business income and business tax deductions . You pay taxes on your net income, which is your total income minus any business tax deductions.
You have several options for preparing and filing your taxes. One option is to visit GetYourRefund.org for free virtual tax preparation. Depending on your income and needs, GetYourRefund will direct you to full-service virtual tax filing, free tax preparation services, or free in-person services. They serve people making up to $73,000.
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Why Else Would I Owe Taxes This Year Heres What To Look For
If youre wondering, why else would I owe taxes this year? The first question you should ask yourself is what other changes were there in my tax situation?
It could be one big change or several changes that made an impact:
- Filing changes But big life changes, such as marriage, divorce, retirement or adding a dependent can affect the your tax situation such as the filing status for which you are eligible and other aspects of how you are taxed. For example, changing from Head of Household to Single will affect your tax bracket and the credits and deductions you can take. If youre married, be sure you understand the difference between the status of .
- Older children To claim the Child Tax Credit, your child must have been under age 18 at the end of the year. If they no longer qualify, you no longer can get the Credit. This significant drop can mean a great deal to your bottom line and may answer the question of why do I owe taxes?
- Other changes in your life can impact your eligibility for various types of credits and deductions. For example, changes in your income might affect whether you qualify for the Earned Income Credit. Or, if youre a college student, maybe you were previously able to claim the American Opportunity Credit, but due to an enrollment status change are no longer eligible.
Understand Your Tax Situation
Even if you owe taxes this year, use it as a learning opportunity to understand your finances better for the future. Keep track of how much you earn, what methods you use to earn money, and how your life changes over time. Its also smart to stay on top of tax-related news so you know about major changes that might affect you. Of course, anytime youre in doubt about how much you owe or what your payment options may be, talk to a professional. Its the best way to protect yourself and keep the IRS happy.
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Impact On Your Return
Kauffeldt explains that instalment payments act as a credit on the return, they give credit do not change your tax liability. By paying the tax you owe throughout the year, you have paid your taxes just like a person that has taxes are withheld from their paycheck. You are still entitled to credits, deductions and other tax benefits just as any other taxpayer.
Any instalment payments you have made throughout the year are claimed on your tax return on Line 47600 Tax Paid by Instalments. The amount you have paid and are able to claim can be found on the back of Form INNS1, Instalment Reminder, or on Form INNS2, Instalment Payment Summary.
These forms are records of your instalment payments that you have made to date. You will receive:
- Form INNS1 in February and in August
- Form INNS2 in February
If you made an instalment payment for that is not shown on your reminder or summary, include that amount on line 47600 as well. You can also see your instalment reminders and the instalment payments you have made by using My Account.
If your summary shows payments that you did not make or that were not intended as an instalment payment, call 1-800-959-8281.
The Federal Income Tax
The federal personal income tax that is administered by the Internal Revenue Service is the largest source of revenue for the U.S. federal government. Nearly all working Americans are required to file a tax return with the IRS each year. In addition to this, most people pay taxes throughout the year in the form of payroll taxes that are withheld from their paychecks.
Income taxes in the U.S. are calculated based on tax rates that range from 10% to 37%. Taxpayers can lower their tax burden and the amount of taxes they owe by claiming deductions and credits.
A financial advisor can help you understand how taxes fit into your overall financial goals. Financial advisors can also help with investing and financial plans, including retirement, homeownership, insurance and more, to make sure you are preparing for the future.
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How Much To Pay:
To avoid interest charges, you must pay tax instalments totalling the lesser of a) your tax owing for the year, or b) what CRA requested of you .
The requested tax instalment payment is always equal to 1/4 of the tax owing at the end of the previous year. So for example if your last income tax bill came to $3,600, the Canada Revenue Agency will request four tax instalment payments of $900 each.
How Has Tax Reform Impacted Withholding
However, in 2018 , the IRS repeatedly under-estimated the amount of withholdings for many taxpayers.
In December 2017 Congress approved Congress passed the Tax Cuts and Jobs Act. The bill was in effect for the first time in the tax year 2018 and which is to be paid on the 15th of April this year. Although it is referred to as tax reform, the TCJA concentrated on a trillion-dollar tax reduction.
In addition, the bill substantially reduced taxes for high earners and corporations as well as increasing the standard deduction to taxpayers of all income levels and also changed the tax rates and cutoffs of income in all tax brackets.
In light of these changes, to reflect these changes, the IRS changed its withholding tables for the year 2018. The agency reduced the amount that it took from the average workers salary. The result was that people were able to receive a little more of their earnings on an individual basis. According to reports, the IRS was instructed to make this change in order to make political decisions during the election year of 2018.
However however, the IRS has reduced its withholdings even more than previously. In the end, it is mainly estimated that the Government Accounting Office has estimated that as high as 30 million taxpayers were getting less than they should have received from their paychecks. In the final quarter of the year, theyd not yet paid all their taxes via biweekly withholding.
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What To Do If You Owe Taxes
The answer to the issue is determined by the root of the issue. Here are a few of the most commonly used methods to address your
Change your pay withholding to reflect the amount.
If youre just receiving too little of your pay, you can make a new W-4 by reviewing the section on Form W-4 that is under the main Next Year slab of Tax Act.
If you are making a minor changes to your tax return, for example, fewer dependents, you are able to make the necessary changes in this section . Tax Act will decide how you can file your return.
Send the updated Form W-4 to the payroll department of your company. Dont send your form directly to IRS.
Withholding of tax from other income
If you earn non-wage earnings it is possible to get income tax withheld from it on your own.
You can, for instance, receive 10 percent of your unemployment benefit to be withheld for tax purposes. This might be a bit painful at the moment, but its a far less painful option than having a huge tax bill that comes in spring.
To get tax taken out of government-funded payments such as social security payments or unemployment payments, fill out Form W-4V available on the IRS website and mail it to the person paying.
Do not give your money directly to IRS. You could have 7 percent 10, 10%, 15 percent or 25% taken from the majority of government checks.
You can only get 10% of unemployment checks.
Make sure you plan for tax planning for your small-sized business
Irs Rules Regarding Your Age
As the table above indicates, individuals younger than age 65 must file if they make certain amounts. The earnings threshold amounts go up a bit for individuals 65 and up.
For married couples that file separate tax returns, the earnings target is based on the age of the older spouse.
In most situations, your age for tax purposes depends on how old you were on the last day of the year. But when it comes to determining whether you have to file a return, the IRS says that if you turned 65 on New Years Day, you are considered to be 65 at the end of the previous tax year. The one-day grace period allows you to use the higher-income thresholds to determine whether you must file a tax return.
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The Philosophy Of Property Tax
You probably already understand the basic reasoning behind taxes: you pay your local, state, and federal governments specific fees to provide for the public services and amenities they provide. As the University of South Carolinas Institute for Public Service and Policy Research points out, property tax is the only major tax common to all 50 states in the U.S. and the oldest tax levied in the U.S. Taxes on income and purchases can generate important revenue for the government, but property remains one of the most fundamental ways to fund the states activities.
Property taxes technically could encompass all of a persons tangible assets and intangible holdings such as stocksbonds, and bank accounts. However, the Institute explains: over the past 30 years, the trend has been to shift away from personal property and toward real property for tax purposes, since real estate appraisals are generally much more accurate than citizens assessments of their own personal property values. Many Americans have the majority of their net worth tied up in their real estate holdings, so property is an important source of taxation.
Penalties For Missing Your Tax Payments
If you donât pay enough or if you miss a due date, you will pay a penalty to the IRS. The penalty amount depends on how late you paid and how much you underpaid.
There are a couple of ways to make sure you avoid paying penalties:
Always pay at least 90% of your tax liability
Pay 100% of last yearâs liability
The basic rule for avoiding a penalty is that you need to pay at least 90% of your tax liability for the quarter or year. As long as you do that, you will never face a penalty for underpayment.
There is one major exception to this rule. Farmers and fishermen who earn at least two-thirds of their gross income from farming or fishing only need to meet 66 2/3% of their tax liability.
The safest way to avoid any penalties is by paying 100% of your tax liability from last year. This is sometimes called the safe harbor rule.
There are a couple of exceptions to this rule, though. If your AGI was at least $150,000 last year , then you need to pay 110% of last yearâs liability to meet the safe harbor rule. This rule also doesnât apply to farmers or fishermen.
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Protect Yourself From Tax
Tax ID theft occurs when someone steals your personal information to file a tax return using your personal data. Usually, the fraudulent tax filer will use your Social Security number to file your return in order to collect a refund. To protect yourself from tax ID theft, you can obtain a six-digit Identity Protection PIN from the IRS. IP PINs are known only to you and the IRS so the IRS is able to confirm your identity when you file your return. Learn more about how the IP PIN works and how to apply.
How Do I Avoid Owing Taxes In The Future
Its important to research ways to avoid owing taxes in the future. Here are some ways to get started, so next year you wont have to ask, Why do I owe taxes this year?
- Update your W-4 annually or when anything changes your tax situation.
- File your taxes early to avoid underpayment and other penalties.
- Speak to a CPA and a financial advisor to get the big picture of your finances and make sure youre maximizing your deductions.
- Use the IRS Tax Withholding Estimator to estimate how much youll owe next year.
Following these steps each year can help you make sure youre withholding the correct amount in each of your paychecks so you wont get caught off guard when you file your taxes.
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Do I Have To Pay Tax By Instalments
If you earn income that has no tax withheld or does not have enough tax withheld for more than one year, you may have to make instalment tax payments.
This can happen when you earn income from rental properties, investments, self-employment, certain pension payments, or your employer/employers are not withholding enough income tax from your paycheques. Greg Kauffeldt, a senior tax manager at an Ottawa based accounting firm, describes making instalment payments as pre-paying a tax liability.
Common Reasons Why You Might Owe Taxes This Year
Although most types of income are taxed, there are several reasons why you might owe the Internal Revenue Service, despite having money withheld from your paycheck all year. Explore some of the most common explanations for owing taxes and how you can avoid making underpayments in the future. Plus, find out what to do if your tax bill is exceptionally large and what payment options you have to get yourself out of tax debt with the IRS.
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Why Do I Owe So Much In Taxes What Can I Do About It
While some taxpayers prefer to have more in their paycheck vs. receiving a refund, many of us look forward to getting money back at tax time.
- If you owe taxes this year and hoped for a refund instead, you can update your withholding. Its likely that youll owe again next year unless you complete a new Form W-4 and increase your withholding. The sooner in the year you submit this change to your employer, the sooner your new withholding will take effect on your paycheck. We can help you understand how to fill out a new Form W-4. Plus, our W-4 calculator is a great resource.
- If you owe the IRS money and cant pay, there are options. We can help you understand how you can pay back taxes if your tax bill is too much to pay right now. H& R Block specializes in helping taxpayers in this situation and our tax pros can explain the steps to take.