Wealthnuvo Financial

We are in tax season and the tax system can be confusing at the best of times. 

Just remember the amount you're taxed depends on your taxable income. The more money you make, the more taxes you pay. This is called a progressive (or graduated) tax system, where low-income earners are taxed at a lower percentage than high-income earners.

A common misconception is if your taxable income moves to a higher tax bracket and that your entire income will be taxed at that higher rate. When in fact, your earnings are divided into different portions that are taxed at the rates that they fall within only. In other words, a tax bracket is the tax rate applicable to a set range of income.

So, even though you earn more and move into the next tax bracket, not all of your income gets taxed in the higher bracket, it’s just the amount in that range. This is called a “marginal tax rate” which is the amount of additional tax paid for every additional dollar earned as income.

Zemi’s marginal tax rate is 29.65% meaning that the next $100 in income she will pay $29.65 in taxes. We’ve calculated the above total tax for Zemi using the basic personal amount exemption but have not included any other applicable non-refundable tax credits (e.g. CPP, EI, donations, tuition, medical expenses, etc).

Reference: Federal 2021 tax brackets. Provincial brackets vary. 

15% on the first $49,020 | $49,020
20.5% on the next $49,020 | $49,021 up to $98,040
26% on the next $53,939 | $98,041 up to 151,978
29% on the next $64,533 | $151,979 up to $216,511
33% on the portion over $216,511 | $216,512 and up

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You stepped out from the shadow of your former corporate world and into entrepreneurship. This is the year to take giant steps towards the financial freedom being a business owner brings.

What are you hoping 2022 brings?

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