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Tips to Help Calculate Taxes for the First Time

Rebecca Rustin
Tax calculations

Self-employed and doing your taxes for the first time? There are a few tools you can use to help you get an idea of how much you will owe the CRA. Keep reading to learn more about our best Canadian tips to calculate taxes.

What is the best way to estimate your taxes?

If you are self-employed or run a small business, we have good news. You can reduce the amount of tax you will owe at the end of the year by claiming expenses.  To streamline this process, you'll need to get organized and plan ahead. Keep a spreadsheet of your expenses throughout the year.  These may include office supplies, inventory, and advertising expenses. If you work from home, you will also be able to deduct a percentage of your rent and utility bills.  Ideally, you should have a system in place to keep track of your invoices. Some people like to keep this information in a spreadsheet, although there are subscription services that can simplify the process for you. Some popular ones include Freshbooks and Quickbooks.  Add up all amounts you made last year, and deduct your expenses and any RRSP contributions made before March first of that tax year. This will give you your net income, which is the amount you will use to calculate your taxes.  Of course, there are other deductions you can claim to further reduce your tax burden. But, deducting your business expenses and RRSP contributions will give you a general idea of your balance owing.

How to calculate your taxes

There are a number of online income tax calculators you can use to estimate how much tax you will owe. However, many of these estimate taxes as if you were a salaried employee. As a self-employed Canadian, that's not what you want.  TurboTax has a self-employed income tax calculator you can use. Make sure you input your income on the "self-employment income" line. If you earned both self-employment income and employment income last year, the calculator can handle that too.  If you'd prefer to estimate your taxes without using a tool, be aware of the following:

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  • A personal amount is entitled to all Canadians. In 2018, this amount is equal to $11,635. In other words, you will not be taxed on the first $11,635 you earned last year.
  • The Federal tax rates for 2018 start at 15% on your first $46,605 of income. Provincial tax rates are in addition to this rate. For a full list of provincial tax brackets, see our previous article on the topic.
  • Self-employed Canadians are required to pay 9.9% into the Canada Pension Plan, but only on income earned up to $55,900.
  • Quebec residents who are self-employed must contribute¬†10.8% on pensionable earnings up to $55,900.

With all of this information, you should be able to get an accurate idea of how much tax you will owe at the end of the year. You can also use an online tax filing tool such as Ufile, TurboTax, or SimpleTax to do the work for you. Once that's done, you can even use your "mock" calculation to file your taxes online through Netfile.

How to pay your taxes

Balances due must be received by April 30, 2018, to be considered on time. The CRA has four major payment methods available:

  • Online banking. To use this payment method, simply add the Canada Revenue Agency as a payee, and use your social insurance number as your account number.
  • Interac Online. You can use Interac to pay your taxes if you belong to a participating financial institution.
  • Directly at your bank. You can pay your taxes in person at your bank. If you pay taxes by instalments, you can even set up pre-authorized payments, so you don‚Äôt have to worry about late payments in the future.
  • Third party service providers. The CRA has partnered with a number of service providers through which you can pay your taxes. Please note that these providers charge a service fee.

If you are a Quebec resident, you will be dealing with Revenu Quebec. For a list Revenu Quebec payment options, please consult their website.  Now that you've got the tools you need to file your taxes, you just need to make sure to file on time!

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