Guest Post for The LRMC
Tax season is a scary time for a lot of people. This year, take charge during tax time with these four important things you should know about your taxes.
1. Do your taxes on time – April 30th.
I know this sounds like a no-brainer, but many people don’t actually file on time—or at all. This is a big no-no. If you owe money and you don’t file, the late penalties are terrible. You end up spending more money in late fees and interest than you would have in the first place.
First Time Late Filing Penalty: If you owe taxes and do not file your return on time, the CRA will charge you a late-filing penalty. The penalty is 5% of your tax balance owing, plus 1% of your balance owing for each month to a maximum of 12 months. So, if you don’t file for a full year, you will have 17% of tax owing for the penalties alone.
Most people don’t file if they’re afraid they owe and don’t have the upfront money. File anyways. Then call the CRA to work out a repayment schedule or opt for tax relief. Believe it or not, they’re actually quite willing to work with you and your financial limitations to get your taxes paid.
2. Don’t file late again.
It’s not the greatest idea to be continually “non-compliant” when it comes to government agencies. In extreme cases, legal action can be taken – garnished wages and bank freezes are no picnic. Filing late repeatedly can be financially devastating; if you file late within three years of a previous late filing, the penalties nearly triple!!!
Repeatedly Late Filing Penalty: The late-filing penalty becomes 10% of your tax balance owing, plus 2% of your tax balance owing for each month that your return is late, to a maximum of 20 months. That is a late filing penalty of 50% of your tax owing.
3. File your taxes yourself – if it’s basic.
I’m not saying everyone should file their own taxes. Tax professionals are important. However, if you have a relatively basic tax situation and usually use mall tax kiosks or non-accountant tax stores to do your taxes, you could do them yourself and save a bundle.
Nothing can replace the work of a CA, CGA, or CMA, but these services can be very expensive. Most of the time, people working at tax kiosks are not certified accountants; they’re simply employees working on some sort of tax software. If this sounds like your tax guy, you should do it yourself.
Online tax software is cheap and even free for people below certain income thresholds. Software like Ufile or Turbotax offer free tax advice as you go and they’re set up to prompt you with questions for all tax credits and deductions you may be eligible for so you don’t forget. Check out this list on the CRA website.
4. Educate yourself
Educate yourself on the tax deductions and credits available to you, not only so that you feel confident to file for yourself, but also to ensure you are taking the proper steps during each tax year to qualify for certain tax breaks.
Most people aren’t educated about the deductions and credits available to them and therefore don’t claim or optimize these expenses. For example, if you have recently moved, you can often deduct certain moving expenses including the costs of transportation, packing and storage costs. If you are preparing to move, it’s best to know about these deductions before so you know which receipts to hold onto. It’s often more worthwhile during a move to pay for various services that are tax-deductible rather than doing them yourself.
Get educated and take control. Go to workshops, read books. Find ways to learn about what tax credits and deduction exist and find ways to use them throughout the year.
Learn more about all filing info on the CRA website.
Happy Tax Season!