The year is now half over, which makes it the perfect time to check in on your tax position for 2021. This will make sure that you’re on track for the year, give you time to make any necessary adjustments and will help reduce any possible surprises come tax season 2022.
The first thing you need to do is figure out how much tax you’ll have to pay for 2021. If your income is similar to 2020, you can expect to pay about the same in taxes with potential decreases due to increase in tax brackets and credits.
If you had an increase in income, due to a promotion, wage increase, new job or more business for those who are self-employed, you can expect to see an increase. If you lost wages due to a layoff, leave, demotion or a slowdown in business, you can expect to pay less.
In situations where 2020 was substantially different than usual, checking with an accounting professional or reviewing your 2019 income tax return is a great option to learn about what you can expect to pay.
You will also want to reach out to a professional where your deductions and tax credits have substantially changed.
Once you have figured out approximately how much you owe, you need to figure out how much you have paid in taxes so far this year.
Taxpayers pay taxes in one of two ways:
Regardless of how you pay taxes, a little over 50% of what you expect to owe should be paid. If not, you’ll need to make adjustments.
For those who are self-employed/pay by installments, you can simply increase or decrease your remaining payments. But be careful, if you reduce your installment payments and there’s a shortfall come year end, you may have to pay interest.
How do I change the tax being deducted from my paycheques?
For employees who have taxes deducted at the source, you will need to fill out a T1213 to request a reduction of taxes at the source. Once this form is filed with the CRA, the CRA will allow your employer to reduce the amount of taxes being taken from your paycheques.
Where you want to increase the amount of tax being deducted, you will want to use a TD1 form. On the backside of this form, you can request that additional taxes be removed from your paycheques each period.
And remember – a tax refund may seem like a great outcome, but a refund means that you have overpaid your taxes in the previous year and are providing the government with an interest free loan.
For help optimizing your taxes for 2021 and ensuring you are paying the right amount of tax throughout the year, contact Koroll & Company today.