Many happy returns, 2011
If you have not been thinking about filing income tax return, you are not alone. However, it is time to start thinking and doing something about it, and build up a good habit of following some simple steps all through the year.
- Tax planning as a year round activity: Suppose you have to use your car to go to clients’ places either as an employee or as a self-employed, you need to record your mileage. To go back to record for the whole year would be a nightmare, and there are ways like using one credit card for all allowable expenses to enable easier tracking. Also, setting up pre-authorized deductions for RSP or TFSA would ensure you to save in a regular basis, but it is relatively painless and hassle free.
- Designate one place to keep all receipts and relevant papers: You do not want to have to look all over your house for all kinds of receipts before the due date. As it is very time-consuming and annoying, that is provided you know what you are looking for. It also means if you cannot find certain receipts, you have to go to the bank, your childcare giver or someplace where may not be receptive to give you the duplicates. And it is likely you would miss out some of the deductions because they are out of sight, out of mind. As some of you might know, in the past several years, CRA allows deductions like public transportation passes, children’s physical fitness expenses for tax credits, which could be forgotten if they are not handy.
- Understand the Tax Free Savings Account: Utilize your TFSA because the interest is not taxable even when you cash them in, unlike the RSP. However, it is important to follow the rules set up by CRA, there would be penalty and interest to pay if you are not careful when cashing or transferring the money in a wrong way. On the other hand, although it is good to invest in TFSA, for a cautious investor (with the concern of unstable stock market) paying down your mortgage would be more prudent thing to do.
- Carried forward or polling some deductions: Strategize like polling your charitable donation and RRSP to use in one year if you know your income is higher than the other. And then there are certain deductions that are allowed to be used by the higher income earners or vice versa, so it is important to know which one and how to do it.
- Using a tax advisor: Hiring a tax preparer is good when you do not have enough time or you have more than just a basic return. However, for some people, it may be worth their while to hire a tax advisor to do a proper tax planning and to make sure all the deductions are maximized. A tax advisor most likely would pay for himself or herself, it would also reduce the stress of doing it on your own. Those professionals would have to stand by their work and responsible for any mistakes or errors they make and also deal with CRA if the situation unfortunately occurs. Usually they would not pay for the liability incurred from the mistake but they will pay for any penalty and interest derived from their mistake.