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A Beginner's Guide to Taxes

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A Beginner's Guide to Taxes

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We all pay taxes once we start earning money. It can be extremely confusing at first because of all the different terms and complex forms. Many people choose to hire accountants to file everything for them, but this isn't an option for everyone. If you decide to do your taxes by yourself, then read this guide to the basics.

Taxable Incomes

The first thing you need to know is what kind of payment is taxable. The government can deduct money from the following incomes: 

  • Your salary

  • Tips

  • Interest earned from bank accounts

  • Dividends from investments (you have to file taxes on crypto earnings for example) 

  • Unemployment compensation

  • Lottery/ gambling earnings

  • Royalties

  • Retirement account withdrawals

  • Severance and sick pay

Always make sure you file any money you receive correctly. It'll save you a lot of time. If you're not sure what category your income falls into, call your tax agency for clarification.

Non-taxable Incomes

Not all money that gets paid to you is taxed. Here several non-taxable incomes that you may receive:

  • Money paid into a retirement fund

  • Receiving child support

  • Gifts

  • Retirement money paid into a new plan

  • Cash from a loan payback

  • Childcare paid through a work plan

  • Disability pay

There are other non-taxable incomes available in many countries. For example, if a company employs you in another country, you can file for tax exemption as long as you meet the requirements. 

Tax Returns

Tax returns are necessary because they report all your incomes, expenses, and other financial information. You can see how much you have to pay and even what is owed to you during filing. You only have to file if you meet a list of requirements, and depending on where you live, you have to send in forms annually.

Forms are available on the tax agency's website along with a list of needed documents. If you need to file, always make sure you do it on time to avoid penalties

Tax Deductions

Certain payments and costs can be deducted from the tax that you owe. Include any of the following on your form to pay less on your taxes:

  • Real estate taxes

  • Interest expenses on mortgages, home equity loans, and real estate

  • Fees for persons with disabilities

  • Casualty and theft losses

  • Medical and dental expenses

  • Charitable work or contributions to tax-exempt organizations

  • Job expenses

  • Cost of a home computer (used for work)

There are other types of deductions, like cellphone bills, education, and business expenses not covered by your employer. You can only include these kinds of costs if the amount is more than 2% of your gross income. This is only applicable in certain countries.

The following costs are not tax-deductible:

  • Trash collection fees

  • Utility bills

  • Car loan interest

  • Real estate points

  • Political contributions

  • Estate or inheritance taxes

  • Credit card interest

If you plan to files for returns, make sure to keep the necessary documents organized so that you don't get confused. You'll also be able to have proof of all the expenses you're claiming.

Talking to Experts

You may be in a position where you haven't paid your taxes or missed filing your tax returns. Canadiantaxamnesty.ca/ recommends that when you have situations like this, and you're unsure what to do, it's time to ask the professionals.

Many tax lawyers can help you with your problems. If you don't have the time to visit an office, then you can easily find a firm online that can help you no matter where you are. They'll assist you with any problems and answer any questions that you may have.

Conclusion

Understanding the basics of paying taxes is vital. When you are a young professional new to the filing, you can easily get confused with all the terminology and regulations. Seek help if you don't know what to do that way, you never get overwhelmed by tax season.

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