Ronika Khanna shows how to use Wealthsimple's free tax calculator to estimate what you owe. Enter your province, self-employment profit, and RRSP contributions. On $50,000 income with $5,000 in RRSP, you'd owe $11,047 in tax and keep $38,953.
Ontario
$50,000
$5,000
$11,047
$38,953
Hello everyone. So if you're a Canadian, self employed or small business owner, a major concern can be determining how much you're going to owe in taxes at the end of the year. Ideally you want to avoid the shock and be prepared for this. And the tool that I recommend to determine your tax liability is if you're an unincorporated business owner or if you take dividends from your corporation is this simple tax calculator by wealthsimple which is amazing to help you calculate your tax liability. And I am not in any way affiliated with them, but I have been using this tool for a long time. So to use the tool you would simply enter your province, let's put in Ontario.
And then you would enter the amount of your self employment income. This is essentially either your income from self employment or if you're a small business owner, freelancer, contractor, and it represents your profit, which are your sales less, your expenses. So keep in mind it doesn't really have to be exact. This is an estimate. This calculation is just for you to be able to determine how much you're going to owe at the end of the year. And so the unpleasantness of the surprise is diminished a little bit. You can also enter your RRSP contributions if you plan to make any or if you have made any. So let's say you have $50,000 in self employment income and maybe you plan to make $5,000 in RRC contributions. You'll see that your total tax payable in Ontario is $11,047 and your after tax income is 38,953. It also breaks down the amount of taxes that you're going to be paying. So you have your federal tax, your provincial tax and your CPP Canada pension plan premiums.
If you are an incorporated business owner, you can also simply enter your dividends in the ineligible dividends category. So again, let's say you're taking $50,000. It will show you how much tax that you're going to pay. With dividends.
The tax amount is a lot less, but it is because dividends are not deductible expenses. So you're paying a higher rate of corporate tax and a lower rate of personal tax. In total it's supposed to come out to approximately the same amount. It doesn't, but it shouldn't be that far off. In addition to your dividends, you also take a salary. You should enter that amount under employment income and you would from the final total deduct how much you have paid in deductions at source which are the CPP and the federal provincial tax from your paycheck, which usually has a year to date column. Or alternatively, you can just enter the amount here and it will automatically calculate what your net tax payable is going to be. So once you've determined how much your tax payable is, you should make sure to put this away. I recommend a savings account where you can at least earn some interest and I also recommend putting perhaps a little more than you owe away, just in case, just as a buffer. And then at the end of the year you can, you know, have a little left over in the account and spend it on something nice for yourself or save it. I also recommend that you do this periodically during the year as the higher the amount of your profit if you're self employed or dividends for incorporated business owners, the greater the taxes, some of which start to be taxed at a higher marginal rate tax rate. So I hope this is helpful. Please like and subscribe and if you have any comments or if you like to see other videos, please leave them in the comments section of this video. Have a great day.
