Are you familiar with the tax brackets for 2019? The new tax brackets provide better rates for most people compared to the current 2018 numbers. Taxes in 2019 decline in all brackets while the percentages stay the same. Due to the thresholds increasing, the tax burden is less for your self-employed business. The opportunity here is to figure out ways to take advantage of the systems in place to help you legally minimize your share of tax next year, assuming your income rises above the new marginal tax rates. Today is a great time to start learning about this process.
Understanding the Future by Knowing the Past
The Government of Canada acknowledges the importance of expanding the middle class and has been taking steps to do so. The tax increase of 2015 on the wealthiest 1% helps 9 million Canadians each year, and the trend continues. The Department of Finance Canada states the Canada Child Benefit will ensure that it continues to play its vital role in supporting families, and that’s just one of the trend lines continuing through the 2019 tax brackets. This is not just for families with children, but for self-employed businesses as well.
The 2019 tax structure is a series of decisions from November 2017. This provides a two-year gap, meaning you can discover what taxes may look like two years in advance of their passage into law. If you keep up with these changes, it can help you to develop the best strategies for your personal and business finances. When it comes to maximizing your write-offs and other sheltering methods, it is always wise to consult your accountant, attorney, and/or another financial professional. Although specifics for the provinces and territories are covered elsewhere, here’s a comparison between the 2018 and 2019 federal taxes:
- 2018: 15% on the first $46,605 of taxable income. 2019: Up to $47,630.
- 2018: 20.5% on taxable income from $46,605 up to $93,208. 2019: From $47,630 to $95,259.
- 2018: 26% on taxable income from $93,208 up to $144,489. 2019: From $95,259 to $147,667.
- 2018: 29% on taxable income from $144,489 up to $205,842. 2019: From $147,667 to $210,371.
- 2018: 33% of taxable income over $205,842. 2019: Over $210,371.
The list makes it easy to compare the changes with the new tax rates. If you take the legally permitted deductions to minimize your net income for the year, you may even find yourself in a lower tax bracket, as well.
In alignment with the list above, one of the most significant benefits of the 2019 plan is the “new enhancement (that) will provide even greater support to current recipients by raising maximum benefit levels and expands the income range of the Working Income Tax Benefit (WITB) so that more workers can qualify,” according to the Fall Economic Statement 2017. Low-income workers will be able to keep more of their paycheques, a move which has the potential to coax previously discouraged unemployed workers back into the workplace. This enhancement also allows those currently employed by small businesses to get a “raise” of sorts from the changes in the 2019 tax brackets (assuming the employee falls below one of the new thresholds).
Where Taxes Are Going
The differential between 2018 and 2019 taxes amounts to thousands of dollars in savings, according to the Organization for Economic Co-operation and Development tax database. Canadian small businesses pay a rate of 12.9%, which is the lowest of the G7 countries, including the United States.
This overview only hints at the myriad complexities built into the tax code. Products like TurboTax by Intuit make it easier to find appropriate incentives and tax deductions that you can take advantage of. Once you get down into the nuts and bolts of how to navigate the tax code, TurboTax helps you even more by turning the process into a step-by-step method that works faster and more accurately than old-fashioned pen and paper. TurboTax is also the best way to maximize your deductions, and they can provide you with tax experts who can either lead you through it or do it for you at very economical rates.
Each of the tax brackets changes the amount you are expected to pay within that bracket, like stratified layers, so a high-income earner pays differing amounts of tax depending on the income between two brackets. This process is repeated until the taxpaying unit, such as yourself or your business reaches the highest bracket. At that point, anything above the maximum amount is taxed at the same rate on all additional monies the company or individual earns.
Claiming Credits and Deductions on Your 2019 Return
You may qualify to claim various amounts related to your self-employment, but the law doesn’t stop there. In brief, some of these programs include deductions and credits for your family, child care, and caregivers. You can claim amounts for your spouse, your common-law partner, children, and other eligible dependents. Claiming deductions and credits for the cost of education as well as fees relating to a person with physical or mental challenges during activities and functions are all acceptable if you meet the new criteria. If you’re a pensioner, you can claim amounts relative to the money you receive and save. Keep in mind these are federal programs.
Each province and territory also has its own specific claims and deductions, requiring a separate study. Need assistance with your taxes? TurboTax has you covered with live support from tax professionals.
Filing Online vs. Handwritten, Mailed-In Tax Returns
Filling the kitchen table with file folders and shoeboxes full of receipts, piles of documents pinned together, the paper version of the tax return document, and legal pads to add up numbers is a time-consuming process. It’s pointless to keep doing it the old way when there are tools that can do the job for you. Maybe your parents still believe in filing taxes by hand, but working in a self-employed business can compound the challenges. With TurboTax’s certification to file through CRA’s Netfile and Efile programs, keeping abreast of your taxes turns into a straightforward process you can manage quite comfortably from anywhere there is an internet signal. Strong encryption protocols help prevent data loss to any information pirates sitting nearby. Your computer or smart device, like a smartphone or tablet, lets you work out your return in a nice comfortable location such as a coffee shop, your favourite chair, or in on vacation in a great hotel room with a view of the ocean. You don’t need to be anywhere near your home area, because TurboTax connects you virtually anywhere you go.
Canada Pension Plan and Employment Insurance Changes for 2019
In 2019, increasing amounts of money taken from your paycheque by the Canada Pension Plan (CPP) are partially offset by the falling amount the CRA is collecting for Employment Insurance (EI). CPP rises in 2019 from 2018’s 4.95% to 5.1%. Canada wants more people to save for their retirement, and so 2019 is the first of a seven-year cycle of increasing CPP. If you work for a separate company besides your self-employment, your employer matches those funds. However, the CPP hits the self-employed — twice once as the worker and once as the company owner, but that rate is falling because the CRA is dropping the self-employed business rate a full point from 10% to 9%.
Getting EI as a Self-Employed Small Business
By contacting Service Canada and entering into an agreement with the Canada Employment Insurance Commission, you can participate in the EI program for access to EI special benefits. Just complete Schedule 13, which calculates your EI premiums payable amount and apply the results into the correct spots on your tax forms.
The Bottom Line
The Government commits to apply future revenues from these proposed measures to further measures to support the middle class, the Fall Economic Report states. The government proposes to strengthen small business competitiveness, and they are fulfilling those responsibilities in just some of the ways this article explains. However, that doesn’t mean doing your taxes on paper is any simpler or easier to do. Using certified tax software is the way to do it. Try QuickBooks today for free to file your taxes seamlessly.