Nobody likes filing or paying taxes, but when taken seriously, personal income tax considerations can save you money.
Every year, you have to get ready for tax season, and it’s always hard to be certain you’ve thought of everything so you can proceed with confidence when you file with the CRA.
It becomes especially complex if you’re an entrepreneur who has individual income from one or more of your business ventures.
What inflows am I required to report? What deductions and credits can I claim? Do I have everything I need to file? Should I be doing this on my own?
With so many questions, it’s easy to lose confidence.
Here are some tips for easing your mind as you pull your returns together.
Know What Deductions and Credits You Qualify For
You don’t have a legal or ethical obligation to pay any more taxes than you owe.
To avoid overpaying the CRA, you need to take advantage of every deduction and credit you’re entitled to. Canada has plenty of them.
There are tax breaks for:
- Medical expenses
- Child care
- Caregiving
- Spouses and dependents
- Disabilities
- Pensions and savings plans
- Home office expenses
- Etc.
It’s good to look through the entire list and see what you’re eligible for. Knowing in advance gives you the opportunity to collect everything you need.
Don’t forget to claim any deductions or credits specific to your province or territory.
Find and Keep All of Your Receipts for Your Personal Income Tax
It’s not enough to say you’re eligible for deductions and credits. There’s a good chance you’ll be called on to prove it. That’s why it’s important to retain all of the receipts related to these expenses.
Ideally, you collected them all during the previous year, but if you haven’t, you’ll have to gather them.
It’s likely some of your receipts are electronic and others are on paper. Copies of them should be organized into electronic or physical files by tax year.
It makes the job easier if, within those folders, you further break them down by deduction or credit type.
Make Sure You’re Using the Right Forms for Your Personal Income Tax
Everybody has to file a T1, but there are other forms you may need to complete. The complexity goes up if you have entrepreneurial income.
Specific requirements depend on where in Canada you live, what your business structure is, and what deductions and credits you plan to claim.
Before you get started, identify all the forms you need and make sure you have them handy. Tax season is easier if you don’t have to stop what you’re doing to go find a form.
Know Your Due Dates
Missing due dates is stressful and costly. Your taxes are already high enough without paying penalties and interest for filing late.
The big deadline for most people is April 30 (May 2 in 2022 due to the weekend), but there’s also a deadline for self-employed filing.
If you don’t have the money to pay the entire tax bill, file on time anyway and pay what you can. If you demonstrate that you’re serious about filing and paying, the CRA will work with you to make payment arrangements.
Also, don’t miss the quarterly deadlines for installments on next year’s taxes. This will lessen the blow come tax time.
Create a Tax Plan
If you followed a tax plan during the previous year, congratulations! You’re finding tax season easier to deal with than those folks who are scrambling to gather documentation.
If you didn’t follow a plan, make a resolution to do so for the coming tax year.
One advantage of adhering to a plan is you’ll have a method for storing all your receipts as you receive them, and they will be ready for you when you file, which as we mentioned is important for claim credits and deductions.
A bigger advantage: throughout the year, you can deliberately manage your spending to realize as many credits and deductions as possible. Many are available, you just have to be sure you are meeting the requirements, a tax plan will help you do that.
You may also be able to manage your income to your benefit. Also, part of your plan will be a task list, ensuring you never miss a due date.
Work with an Experienced Accountant
The best way to be confident about your personal income tax considerations (and to save money!) is to have a tax plan.
However, it’s hard to know exactly what to include in your planning. You won’t have confidence if you’re not sure whether you’ve left something out.
That’s where an experienced accountant comes in. Argento CPA is experienced in personal income tax consideration. We know exactly what you need to do to maximize your savings and will work with you to put together a comprehensive plan to ease your mind and prepare you for tax season. We will help you make sense of your taxes so you can approach tax season with confidence. Contact us today to learn how we can help.