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2020 YEAR-END TAX PLANNING TIPS INCLUDE: COVID 19 EDITION

2020 YEAR-END TAX PLANNING TIPS INCLUDE: COVID 19 EDITION

Tax planning should be a year-round affair, over 30 million returns were filed last season and the Canada Revenue Agency (CRA) wants to help you. But this year, definitely Covid 19 pandemic may have affected your tax filling state. It has been levied by the government on employee’s income and business profits. Tax season is coming and it is the time to get ready to file your tax. The Canada Revenue Agency (CRA) wants to help you make sure your clients are prepared to file their returns this year. 

Rates and Limits

As expected, several tax rates and limits are changing in 2021.

  • Federal and provincial income tax brackets are increasing to keep up with inflation.
  • Employment Insurance (EI) Premiums are staying steady at 1.58% in 2020. However, maximum insurable earnings will increase from $54,200 to $56,300.
  • Maximum pensionable earnings, the amount used by the government to calculate Canada’s Pension Plan contributions for the year, is increasing to $61,600 in 2021, up from $58,700 in 2020. Similarly, the employee and employer contribution rates for 2021 will be increasing by 5.45%, up from 5.25% in 2020.
  • As was the case last year, the Canada Child Benefit will continue to be indexed to inflation. In 2021, the maximum a parent can receive is $6,765 for children under age 6 (up from $6,639 in 2020) and $5,708 for children ages 6 to 17 (up from $5,602 in 2020)

Tax Filing Deadline

 The Canada Revenue Agency (CRA) has not extended the tax filing deadline. The due date is still April 30 for most Canadians and June 15 for self-employed people. 

To avoid interest charges, Canadians need to pay any taxes owed by April 30. However, not everyone has to comply with that rule this year Those who had a total taxable income of $75,000 or less and received one or more.

The COVID-19 benefits listed below don’t have to pay their taxes until April 30, 2022. 

1.Certain expenditures made by individuals by December 31, 2020, will be eligible for 2020 tax deductions. Or credits including digital news subscriptions, registered journalism organization contributions, moving expenses, child care expenses, charitable donations, political contributions, medical expenses, alimony, eligible employment expenses, union, professional or like dues, carrying charges and interest expense. Ensure you keep all receipts that may relate to these expenses.

2) No tax was retained on Canada Emergency Response Benefit (CERB) payouts, Since these payments are taxable, taxes may be payable upon filing. If you received a deliberate payment from your employer in respect of a period for which you have received CERB.

 3) There are benefits (required repayments) associated with certain COVID-19 related employment insurance; like payments, depending on annual earnings. The amounts for 2020 are: · Canada Recovery Benefit – $0.50 of every dollar earned more than $38,000 · Employment Insurance – $0.30 of every dollar earned more than $67,750 · Canada Emergency Response Benefit – No clawback due to annual earnings is applicable

4) A senior whose 2020 net income exceeds $79,054 will lose all, or part, of their Old Age Security pension. Senior citizens will also begin to lose their age credit if their net income exceeds $38,508. Consider limiting income over these amounts if possible. Another option would be to defer receiving Old Age Security receipts (for up to 60 months) if it would otherwise be eroded due to high-income levels.

Tax-Free Savings Account in 2020

Individuals 18 years of age and older may deposit up to $6,000 into a Tax-Free Savings Account in 2020. Consider a catch-up contribution if you have not contributed the maximum amounts for prior years. being an individual’s contribution can be found online on CRA’s My Account.

How long do I need to keep receipts and supporting documentation from my taxes?

It is highly suggested to keep your receipts and associate tax documentation for at least 6 years.

The reason being is the CRA may ask for documents as proof of any deductions or credits you claimed. Documents can include:

  • Tax Returns
  • T4 Tax Forms
  • Annual Mortgage Statements
  • Receipts and statements for tax returns including donations, RRSP contributions, child care receipts, mortgage interest, medical expenses, property tax payments, alimony/child support paid or received,

There are three fundamental ways to reduce your taxes:

1. Lower your gross and taxable income by deferring income to another year.

2. Take all allowable deductions, such as by maximizing your RRSP contributions.

3. Use all your available tax credits to lower your total taxes owing.

Taxation is an important thing but more important to manage how, so keep manage your tax with tips go online for filling tax read more about benefits and relaxation keep your document ready or keep your saving keep.

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