Monthly Archives: October 2009

Get Organized For Tax Season

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In the words of Dave Barry, “It’s income tax time again, Americans: time to gather up those receipts, get out those tax forms, sharpen up that pencil, and stab yourself in the aorta.”

Filing taxes = huge pain. We all know it. We all go through it once a year. And while there’s no way around tax season, there is a way to make the process less stressful.

P.R.E.P.A.R.A.T.I.O.N. (I’m hearing a collective sigh from all the procrastinators out there!) A little bit of preparation can make a huge difference in your tax filing experience.

Here are 5 steps to a help you file your taxes, on-time and un-frazzled…

(Think T-A-X-E-S!)

(1) Tally: Decide how many hours you’ll need for tax prep.

First, choose a final date, such as “I wanna be done with my taxes by 1 April.” Then work your timetable backwards from there, planning around your work schedule, family responsibilities, and extracurriculars.

Second, think about how long it’s taken you in the past to file. If 6 hours of tax prep has been enough in the past, then this year will likely be no different unless you’ve had major changes in your life. So pencil in 2 hours on your calendar for 3 Saturdays between now and April 1st, or maybe 1 hour each Monday evening for the next 6 weeks. Etc, etc.

Looking ahead will prevent a last-minute tax crunch and all the pressure that comes with it!

(2) Assemble: Gather all tax-related documents.

Search your files, baskets, and bins. Your objective? To find any and all receipts, canceled checks, and other papers that support an item of income or deduction.

Be on the lookout for important forms like W-2s and 1099s in the mail.

And don’t forget about the charitable donations you’ve made over the last year! Visit www.itsdeductibleonline.com for *free* software from TurboTax that tracks and adds your donations year-round and accurately determines the value of your donated items.

(3) X-cessorize: Compliment your tax prep efforts.

I’m not talking shoes and purses here! It’s all about storage. Now that you’ve got each and every one of your tax documents assembled, they must be organized in one central location, so as not to get lost.

There are lots of different tax organizers that can keep your tax papers in order. You can dress ‘em up in style with something like the Buttoned Up Tax Filer. Or if you’re not into fancy-schmancy, then you can dress ‘em down with the oldie but goody manila envelope.

(4) Evaluate: Assess how you want to file your return.

Will you prepare your return or go to a tax preparer? Do you qualify to file at no-cost using Free File on the IRS website? Are you eligible for free help at an IRS office or volunteer site? Will you purchase tax prep software or e-file online?

There are many possibilities to consider! Weigh them all and find the option that best suits your needs. You may need to make modifications to your tally and time line, if necessary.

(5) Schedule: Make a date to file your return.

If you’re doing your own taxes, make an appointment with yourself. If someone else is doing your taxes, make an appointment with him/her.

Schedule asap – before the calendar fills up! And schedule a date several weeks ahead of the April 15th tax deadline, just in case something comes up and you need a bit more time to complete filing.

And remember: It’s never too early to start tax prep for next year!

6 Tax Tips When Filing Income Taxes

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Before the March 1st RRSP deadline, tax payers are asking themselves important tax related questions; Should I put my money in a Tax Free Savings Account (TFSA) or in my RRSP?, When is the right time to move from a province to province?, Should I file my taxes even though I have not made much money in the 2009 tax year?, Can I get any tax deductions for my medical costs in the 2009 tax year?, Can I claim my elderly parents or grandparents as my dependents and get tax deductions in the 2009 tax year?, Can I use my children’s university tuition credits to reduce my tax obligations?

Should I put my money in a Tax Free Savings Account (TFSA) or in my Registered Retirement Savings Plan (RRSP)?

If you can invest the money you should use both tax vehicles, but if you can afford just one you must consider the effects on your finances and impacts on overall tax claim of each one separately. RRSP is suppose to give you a tax shelter at the time of tax filing in any given tax year, while Tax Free Savings Accounts uses money after taxes, which once deposited in a TFSA, accumulate interest which at the time of withdrawal is tax free. If you find a financial vehicle within the TFSA account that yields you a lot of interest, the money made from those investments are 100% yours at the withdrawal time. So, if you think that you will be in a lower tax bracket at the time of retirement, you should invest more in an RRSP, because you will get a greater tax refund at the time of tax filing. However, remember once the RRSP is withdrawn it will be taxed in the future. If you have low income in the future, you will get a smaller tax burden from the RRSP withdrawal. In the second case scenario, if you think you will be making more money in the future or at the retirement age, TFSA is the better option because as mentioned before TFSA accounts and money accumulated in those accounts are not subject to taxation at the time of withdrawing money.

I am moving to another province from my current province of residence.

When is a good time to move? The simplest answer to this question is that you are subject to the tax rates of the province in which you reside on DECEMBER 31, of any calendar year. You should check provincial tax rates to get an idea which provinces have higher tax rates and which ones have lower. Obviously, if you are moving to a province with higher tax rates it is more beneficial to move in the New Year so that you can still qualify for previous tax year at lower tax rates. If the scenario is reverse, pack your bags and get a permanent address in your new province, quick and before the year is out.

What if I didn’t make too much money in the 2009 tax year?

In this case scenario, it’s recommended to file your taxes even if you had no income or taxes owning. For students, if you are in RAP – Repayment Assistance Program, the government might ask you as prove of income for your Notice of Assessment which is received after you file your taxes. If you haven’t filed your taxes you will have no Notice of Assessment, hence no prove of income and your RAP application might be declined. In addition, filing your taxes will determine if you are eligible for such government programs as the Canada Child Tax Benefit, a GST/HST credit or other wide variety of tax rebates available in the 2009 tax year. As well, filing reports will increase your future RRSP contribution room.

Can I get tax benefit if I spent a lot of money on medical costs?

In order to claim your medical expenses in the 2009 tax year, these medical expenses must exceed 3% of your NET INCOME. You can benefit from tax breaks, more likely, if you claim all medical expenses for you, your spouse or common-law partner and your dependents who are under 18 years of age on a SINGLE TAX RETURN. As well you can claim travel costs, meals and vehicle operating expenses, but only if you have traveled more than 40 km to get to the medical facility for treatment. If you traveled more than 80km to get to the treatment you can file additional expenses for accommodations such as hotel, motel etc…It’s usually better to claim medical expenses on an income tax return of a spouse with lower income in 2009 tax year.

Can my elderly parents be considered my dependents?

Remember, dependents are not only your children under the age of 18; they can be your parents or grandparents too, provided that they are mentally or physically infirm dependents. Therefore, you are taking care of them, they live with you and have a net income of less than $18,081- you are eligible to claim all or part of the CAREGIVER AMOUNT.

Can I claim tuition credits from my children who are enrolled at a college or university?

Yes, often students have little or no income, so that they can reduce their income taxes to zero with just their personal not taxable amount and then either carry forward their tuition credits for future tax years or transfer the credits to parents or grandparents, spouse or common-law partner, or even your spouse’s or common-law partner’s parent or grandparent. The student must file their income tax first and claim the tuition credits and then any amount left over after the students’ tax is reduced to zero can be transferred to you.