As Benjamin Franklin once said: “If you fail to plan, you’re planning to fail.”
Working in the tax industry, I am always surprised by the number of people who think tax planning only happens when they file their return. Waiting until March or April to do your tax planning is not recommended if you want to pay the least amount of tax legally possible.
Every year, millions of Canadians wait until the last week to file tax their return, with one in five admitting that they file just in time. Ideally, tax planning should be a year round activity where you see the benefits when you file your return. Whether you get a refund or owe the government, your tax return should not be a surprise at filing time.
It does not have to be an onerous task. Collecting receipts and asking some simple questions can help make filing much easier next year.
Are you ready?
Did you have any major life changes in 2015? Medical expenses, the birth of a child or selling an asset can all have tax implications. Hopefully you have kept all potential tax paperwork in one place so you can easily find it. If you are missing a receipt, then you should get a duplicate so you don’t miss out on any tax savings.
Confused about what you should be keeping? Your T4s won’t arrive until after the New Year, but other documents such as tuition and education receipts, transit passes, medical receipts and stock transaction receipts may arrive in 2015. You may also have RRSP contribution slips, childcare expenses and charitable donations. For other income slips coming in 2016, set calendar reminders to remind you.
If you moved this year, then now is a good time to notify your bank and past employers so tax documents arrive at the right address. Remember, you are responsible for reporting your annual income so a missing T4 slip is your problem.
Kids can be expensive, but parents can claim a number of credits and deductions to help lower their tax bill a little.
Watching your child’s holiday performance at daycare is always a fun and heartwarming experience. When it comes to daycare and other childcare expenses, for children under seven, parents can claim childcare expenses to a maximum of $8,000. For children seven to 16, the maximum is $5,000. Children with disabilities qualify for a larger deduction but you must have an approved Form T2201 – Disability Tax Credit Certificate.
If you signed your child up for fitness activities in 2015, then you might be eligible for the Children’s Fitness Tax Credit, a 15 per cent refundable credit based on registration costs of up to $1,000. Remember, your activity must meet the requirements and the organization must provide you with a receipt. Equipment cannot be claimed.
Many kids in university will be coming home after a semester of hard work and fun. It’s a good time to chat with them about managing their taxes and finances so they can think about planning for life after university. Most universities and colleges make the Form T2202A available online for download. This allows a student to claim tuition as well as the education amount and the Textbook Tax Credit. The student must claim all the credits that they need first before they can transfer up to $5,000 to a parent, grandparent or spouse.
Did you take care of yourself?
Medical expenses are often some of the most missed credits each year, so familiarize yourself with the eligible expenses list. While it’s quite lengthy, it is a good resource for knowing what can be claimed and deducted.
You can time your medical expenses to get the best refund. You are allowed to claim your best 12 months as long as one of the months ends in the tax year. It may sound a bit confusing, but it is easier than you think. For example, let’s say you have some major dental work completed at the end of 2014 and the beginning of 2015. You can claim medical expenses from September 2014 to August 2015 on your 2015 tax return. Your tax savings on medical expenses depend on the amount and your income, so the more receipts you have, the better chance you have of saving money.
Don’t wait until it is too late.
Waiting until April 2016 to try and reduce your 2015 tax bill is too late. By getting organized now, you will give yourself the best opportunity to learn about, and identify the credits and deductions you can claim. This will lead to the best chance of paying the least amount of tax.
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