What You Need to Know Beforehand About Tax Season 2021?

Tax Season

The year 2020, one of the most unforgettable years in our lives, is gone, and we are already into 2021. Yes, there are certain things that we would have loved to take care of in 2020 itself but which have carried on into this new year too. One for instance is the COVID-19 virus, and the other the TAXES. 

Perhaps we could have taken care of COVID-19 at some point, but it will not be possible for any of us to evade the responsibility of taxes any time. The government, to ensure that the exchequer is not running empty, levies taxes in exchange of services and utilities provided to the citizens of a country.

How much should a taxpayer pay? Is there a tax calculator that one needs to carry along while availing of some services from the government? Yes to make your tax calculations you can use an Ontario tax Calculator to calculate the taxes you need to pay.

However, there are certain things that everyone must be familiar with before filling in their tax returns.

Tax Season

What is It that Every Person of the Country Must know? 

Basic Knowledge for Tax Season 2021

  • Tax Day: 15th April 2021
  • Standard Deduction has increased both for Single filers ($12,400) and Married Couples($24,800)
  • Income Tax brackets increased taking into account the high inflation rate

Tax Deductions that will Apply in 2021

Some of the tax deductions and their rates as applicable in 2021 are

  1. Charitable Deductions:  Due to the COVID-19, as per the CARES Act, the charitable deductions can go upto 100%of the Adjusted Gross Income(AGI). In case of Standard Deductions, charitable deductions can amount to $300.
  2. Medical Deductions: The taxpayer can deduct any medical expenses above 7.5% of the AGI but will need to itemize the deductions to avail this benefit.
  3. Business Deductions: The government allows a number of tax deductions if you are self-employed. The term self-employed and work-from-home will be considered as two different terms with the later not getting any such benefits.
  4. Earned Income Tax Credits: This is helpful mainly to the middle class workers. They can save a few thousand dollars even depending upon their income, filing status, and how many children they have.
  5. Child Tax Credit: Every family can claim up to $2000 for every child who qualifies for the credit. This is a refundable credit and as such, the family receives $1400 as refund for every child.

COVID-19 and the Taxes

Well, here is a reminder of the ill-fated COVID-19 virus that was brought to halt the economy of the world. The virus is going to affect your tax payment as well. This is how:

The Canadian Govt. sent  $1200 as a relief amount to its citizens as a part of CARES Act. This will not be taxed, but will be treated as refundable tax credit. For the small business owners, the Canadian Govt. set up a Paycheck Protection Program.

The loans given under this are to be waved off provided they are used for payroll, rent or interest on mortgage payments, and utilities, to name a few. However, the Small Business Administration must give its approval to waive off the loan for the business.

The process is quite time-consuming as the number of applicants are more than a whopping 5 million. During the pandemic many citizens received unemployment benefits. These benefits will have to be accounted for on the day of filling your taxes.

Educational Expenses During COVID-19

The various educational institutes took to work from home during COVID-19. Any money that was withdrawn by you from the 529Plans or the Educational Savings Account will have to be spent on some educational program within the next 60 days or you are liable to pay income tax and withdrawal penalty as well.

Using the 529 Plans students can loan an amount of upto $10,000. This is not an amount that can be paid annually but it is a total amount that can be paid using 529. The loan money can now be used to pay for apprenticeship programs also.

Retirement Plans

The changes that have occurred in the Retirement Plan related Taxes include:

  1. You are allowed to take out of your retirement accounts (401(k) or IRA) a sum of $10,000. This is not worth recommending to anybody. Also, any amount that you withdraw from such accounts becomes taxable.
  2. If you own an IRA, you need to take out the money when you reach a specific age. This age, which was earlier 70 Years and 6 Months, has now been extended to 72 years (i.e. if you had your 70th birthday on 1 July 2019). For seniors the CARES act has allowed them to skip this withdrawal for the year 2020.
  3. As per the SECURE Act, the retirees can keep on putting their money in traditional IRAs starting from 2020.  As this money is taxable, whenever the money will be taken out, it will be taxed. However, it is helpful to lower your taxes that you pay annually.

Calculation of Ontario Tax

If you are an employee in Ontario, here is how your Net Income is calculated

For an Employee: 

Net Income=Taxable Income – Canadian Tax – Ontario Tax –Canada Pension Plan- Employment Insurance

For Self-Employed Workers:

The same equation holds true for self-employed workers. However, the self-employed workers are required to pay more than the employees do, as they are owners of a business.

Tax Figures for 2021

Every province in Canada has its own tax rates and brackets. The amount or the wage that is entitled to a 0% tax is known as the tax threshold and is considered as a non-refundable tax credit.

Table of Amounts & Threshold 2021

For Provincial Ontario

Amount Type                                                               Amount

Basic Personal MBP Amount or Credits                     $10,880

Ontario tax threshold (provincial)                              $10,880

For the Federal Govt., Canada

The federal threshold is the same at $12,421 but beginning 2020 the Tax threshold in Canada has increased to $13, 808.

Amount Type                                                               Amount

Basic Personal MBP Amount or Credits                     $12,421

Tax threshold in Canada (federal)                              $ 12 421

Tax threshold in Canada (federal) for 2021   $ 13 808

Table of Provincial Tax Brackets in Ontario for 2021

Gross taxable income brackets OntarioMarginal tax rates
10,880$ or less0%
10,880,01$ to 45,142$5.05%
45,142.01$ to 90,287$9.15%
90,287.01$ to 150, 000$11.16%
150, 000,01$ to 220, 000$12.16%
220, 000,01$ or more13.16%

Federal Tax Brackets and Rates Table for 2021

Taxable Gross Tax RatesMarginal tax rates
12 421 (up to 13 808) $ or less0%
2,421$ to 49,020$15%
49,020,01$ to 98,040$20.50%
98,040,01$ to 151,978$26%
151,978,01$ to 216,511$29%
216,511,01$ or more33%

Let’s Finalize

The year 2020 was not one worth remembering and as it went away it left behind a number of taxes to be paid. Some of the taxes have been subdued to ease the pain of the year 2020 and the disturbed economic balance due to COVID-19.

However, there are others that have also shot up. The date is fixed on 15th April 2021 for you to pay those taxes. Don’t forget to go through all your incomes and expenses before you file in your returns.

Also, be sure to decide whether you want to pay according to Standard Tax Deductions or you want to itemize every income and expense you have made. These things are crucial in deciding what and how much you pay.

You could use a website or some tax calculator app to know how much taxes you are going to pay.

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