Understanding Tax Instalments

Whether you’re a brand new business or you’re a freelancer, identifying how much tax you need to pay and when can be a difficult and time consuming process. You may worry that you haven’t accounted for everything and then when payment time arrives, you owe money. This is an unpleasant and unwanted occurrence, for sure.

The best way to avoid any unpleased tax-related surprises is to do your research into the tax system, and to understand when your tax instalments are due. You should also use effective tax planning services, to be on top of everything related to your business. If you opt for monthly or quarterly instalments, you can easily create a more balanced method of managing your taxes, and therefore you will have a greater idea of how much you will need to pay to the Canada Revenue Agency (CRA) on an annual basis.

 Remember, it’s all too easy to focus on the business at hand, including the daily running, which mean less focus on taxes. This all adds up to a higher chance of an unexpected tax bill when January comes around. 

About Monthly And Quarterly Tax Instalments

You will need to pay monthly tax instalments to the CRA if you or your business owes more $3000 or more in taxes in that current tax year, or in the two tax years previously.

There are many benefits to paying your taxes in instalments, not least the fact that there is far less stress as a result. You are effectively using tax budgeting across the entire tax year. 

Quarterly tax instalments are a good idea for businesses who start off slow and then build up to more revenue over time. This means you don’t have to pay a full lump sum of taxes at one time, which could be difficult if you are unsure about how well your business is going to do. Managing your budgets in this way ensures you do not get into a tax issue in the future, which could, in the worst case scenario, end your business.

Quarterly instalments are paid to the CRA at regular times throughout the year, and on the 15th day of that particular quarter. So, you will pay on:

•   15 March
•   15 June
•   15 September
•   15 December

Having set days give you a much better chance at ensuring you have what you need ready, when you need it. You can pay your instalments online, which cuts out on the stress of needing to head to an approved bank. This also eliminates reminders, emails, etc, which in themselves can be stressful.

Tax Management is Vital For The Smooth Running of a Business

Every single business has to pay taxes, whether small, medium, large, or freelancer. It’s an annoyance, but it’s something which we have to live with. Not budgeting effectively for taxes is a common pitfall that can land a business in very hot water indeed. Large lump sum payments aren’t always feasible, especially if a business is new and hasn’t yet built up its regular and reliable client base.

By opting for quarterly tax instalments, you know exactly what you need to pay and you’ll know when you need to pay it. If you have to make monthly instalments, the same rule applies. This leaves business owners and freelancers the time and free rein to focus on building up their business empire, without having to worry about what tax is due and when.

This is all the more important for a small business. As previously mentioned, an unexpected, large tax bill could be enough to end a business which hasn’t yet built up stability. It’s always a good idea to enlist the services of a Accountant to help keep on top of such payments, and this is a very positive step to make. It is also a step which will steer you towards business success in the future, without unforeseen payments coming your way.

So key take away is always make instalment payments if your tax bill is anticipated to be more than $3,000. This will keep stress off your budget and keep CRA from charging you unnecessary interest and penalties.

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- Written by: Jag Bath