It’s a little late to practise early tax preparation this year— but make it your practice for next year and you will keep more of what you earn. That’s because early tax prep and planning pays off in many ways.
Here’s one: If you use the services of a tax preparer, by being better organized, you’ll likely reduce your costs for tax prep because it’ll take less time to prepare your taxes and better organization will make it easier for your tax preparer to do his/her best. Complete and logically organized tax information makes it much easier to identify and take full advantage of all your tax deductions.
Here’s how to get an early — and more profitable — start on next year’s tax savings:
1. Check and review last year’s return to ensure you won’t miss out on any deductions and credits in the current year. Look at your carryforwards — your unused Retirement Savings Plan (RSP) and Tax-Free Saving Account (TFSA) contribution room — and do your best to fill it up fast to potentially reduce your taxes while enhancing your eventual retirement income.
2. Get organized by setting up a simple file system and separating your information by type— income, deductions, credits, and so on — your tax tasks will be much more manageable.
3. Keep track of all your expenses and retain receipts even though you don’t necessarily have to submit them with your return. Don’t forget moving expenses, accounting fees, investment management fees and the like.
4. Keep more of your paycheque by reducing payroll tax deductions. When you get a refund cheque, it means you’ve paid the government too much during the year, providing them with a tax-free loan and reducing the amount of money in your hands that you can invest during the year. If you expect a fat refund next year, apply to your employer to reduce the amount of tax deducted from your paycheque.
5. Make your tax payments on time if you’re self-employed and required to pay tax installments during the year. You’ll avoid interest and penalties.
6. Perform a check-up on your financial health by reviewing your overall financial plan. It’s easier to measure your results against objectives when every aspect of your financial life is laid out before you.
7. Be super prepared by disciplining yourself to track all of your tax expenditures for the entire year — and it’s a good bet you’ll save even more.
8. Do it yourself … or not. A professional tax preparer does cost money, but consider the amount you can save in taxes and anxiety. For instance, if there is a dispute, your preparer can go to bat for you with the Canada Revenue Agency (CRA).
And here is one tax-saving strategy you shouldn’t overlook: be sure to talk to your professional adviser to ensure you take full advantage of every tax–reducing opportunity available to you.
J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.