Are you dreaming up ways to spend your tax refund or already stressing about the amount you may owe to CRA? Either way, it is important to get organized sooner rather than later. Here are a few simple steps you can make tax time less stressful.
1 – Collect all tax information in one spot all year round
Create an envelope (or file) and label it “2020 income tax return”. On the envelope/folder list of all tax slips/receipts you expect to receive this tax season such as T4’s, RSP contributions, childcare receipts and investment slips. Once received, check it off the list and put it in this spot. You will always know where it is and you won’t risk losing an important document or wondering if you have everything you need to prepare the final return.
2 – Be familiar with recent tax changes that may affect your return. You don’t need to be a CPA to understand what may or may not apply to you. Check the Canada Revenue Agency tax site for a list of current changes. Stats Canada has reported nearly 40% of Canadians telecommunicated for work during the pandemic. If you were one of them you may be eligible for a working from home credit of $400 or more. Moved in 2020? You may be able to claim moving expenses if you relocated out of province. If your marital status changed in 2020 this may affect credits such as GST refunds or Child Tax Benefits. It’s important not assume that every tax filing will yield the same results as circumstances do change.
3 – Learn to do your own taxes. You don’t have to be a tax expert to file your own taxes. There are many free tax software programs available and most guide you through filing the numbers in the correct boxes. Considering the average tax preparer charges, even for simple returns, upwards of $100 or more, filing your own taxes does save you money and makes you better educated about your tax situation. If you are low income and unable to pay for the preparation of your return, the Halifax Public Library and community centers offer volunteer tax help to prepare your taxes for those that need assistance. However, enlisting the services of a professional tax preparer might be your best tax decision if your return is complicated or if you run a business. Getting educated help often increases your likelihood of a refund or reduces the amount you may owe. Regardless, having someone else doing the heavy lifting will greatly decrease your stress. But be aware, you will pay for that experience, especially if you require the assistance of a CPA.
4 - File a return - no matter what. Even if you are certain that there will no balance owing or no income refund coming, filing a tax return is recommended. Filing reduces the ability of CRA to make arbitrary adjustments/assessment (basically a guess) on your income and taxes owing for that tax year. The filing of the return reports earned income, which increases your future RRSP contribution room and also determines your eligibility for government programs such as GST credit rebates or the Canada Child Benefit. It’s never too late to file delinquent returns (such as 2017, 2018, 2019. But keep in mind, filing late will cause CRA to add on a late filing penalty to your assessment. Every dollar counts!
5 – If you owe, do not avoid repayment. Many tax filers this year will find themselves owing instead of getting a refund thanks to receiving taxable Federal aid during the pandemic such as the CERB (Canada Emergency Recovery Benefit). Avoiding tax debt will not make it go away. In fact, when it comes to taxes, CRA has many tools at their disposal to enforce repayment such as offsetting credits such as GST, seizing bank accounts, judgements and garnishing wages. If you do owe CRA, be proactive and make arrangements to pay off the debt in a timely fashion to avoid accumulating interest and late filing penalties. If the matter is more serious, consult a Licensed Insolvency Trustee who can educate you on your legal debt options to deal with the matter such as consumer proposal (deal to creditors) or bankruptcy.
6- Don’t Count Your Chickens Until They Hatch. Many people assume they will get a tax refund and spent it before it arrives. Remember this isn’t a windfall. Based on last years’ income and deductions, you actually overpaid on taxes and you are getting the overpayment back. Wait for the refund and in the meantime, plan for its wise use. Fingers crossed third waves don’t happen but one never knows. Setting aside that refund in an emergency fund might be the best option.