Every year, many of us say next year we’ll be better prepared. But as time goes on, we often revert to old habits. Next year, we find ourselves in the same position as last year – running around at the last minute trying to get things done, to meet the deadline and to avoid any penalties.
Here’s how you can avoid repeating past mistakes:
If you’re one of the many last-minute registered retirement savings plan (RRSP) contributors, talk to your financial adviser about setting up a monthly contribution plan. This way, you’re not scrambling at the last minute to find the money to make a contribution. Plus, smaller monthly contributions are much easier on your cash flow than trying to come up with a lump sum at the last minute.
If you’re unsure of just how much you’ll want to add to your RRSP next year, set the money aside in a tax free savings account (TFSA) or a regular savings account. That way, you can always take the cash out and deposit it into your RRSP sometime in the new year, before the RRSP deadline of Feb. 28. Should you need the cash for some other reason, you won’t pay taxes to take it out of your RRSP.
But be careful when taking money out of a TFSA – there are strict rules about when and how that money can be re-contributed. Along with those strict rules come stiff penalties for over-contributions, so beware.
If you’re self-employed and you haven’t done this yet, start a monthly system using envelopes or files to gather and sort all your receipts. Organize these the same way that your expenses are entered on your income tax return. That way, everything is in one place and sorted when you need it next year.
Also, consider setting aside some money each month to cover your income tax bill. Many self-employed people get behind with the Canada Revenue Agency (CRA) and this can lead to much bigger financial issues. Estimate how much you should set aside with one of the many tax calculators available online.
Don’t forget your medical expenses. Keep receipts and a list of all expenses you have to pay, including travel expenses that directly relate to medical treatments. For more information on medical expenses, go to http://www.cra-arc.gc.ca/nwsrm/txtps/2016/tfsk26-eng.html or search the CRA website for allowable medical expenses.
If you’re retired, consult with your advisers to determine how much money, if any, should come out of your retirement accounts this year. What must you take out to live on? What do regulations say you have to take out? What should you take out from a tax planning point of view? They’re likely three different amounts. Sometimes taking more out than you need and reinvesting it in something like a TFSA can be financially beneficial.
Did you have to move or relocate to get new employment? If so, make sure you keep track of all of the costs associated with your move, since many of these expenses are tax deductible. Moves that put your new home 40 km or more closer to your new workplace are generally tax deductible.
Lastly, keep a record of all the T-slips that you received for your 2016 tax return and next year match up the ones you receive to the list. Every year, many people get reassessed by CRA because of missing slips on their income tax returns. So save yourself the headaches and double-check that you have everything before you file.
All of this will make the process much easier when tax time comes around next spring.
Bill Green is an hourly financial and estate planner, public speaker and the author of The Success Tax Shuffle. Bill has over 26 years of experience in the financial services industry.
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