No one likes tax time. Unless of course you are one of those rare people who have a simple tax return and you know you are getting a big tax return. Rarely do those two things go hand in hand. But perhaps we can try to make tax time pain free by putting a system in place that makes it easy to pull all the necessary information together and that helps you maximize your retirement savings. As always, a good accountant and financial planning expert/advisor are key members of your team.
First things first – get ready to make tax time pain free this year
Even though I can’t help you rewind time and get organized you can use one of these handy checklists from H&R Block to make sure you have everything you need to get started on this year’s tax return.
Plus, don’t forget the following deadlines:
- Feb 29th is the deadline to contribute to your RSP and deduct it from your 2015 taxes. You can
- April 30th is the tax deadline. If you owe CRA money then you must also pay by this date.
- April 15, 2016 – US Tax Deadline
- April 18, 2016 – IRA contribution deadline for 2015 tax deduction
- June 15, 2016 – Tax Deadline for US Expats (There are some rules around this so please consider getting tax advice)
You still have time to make last minute contributions to your RSP or IRA for a 2015 tax deduction if you haven’t already maxed out your contributions.
If you aren’t sure how much you can contribute to your RSP you can get your contribution limits from “My Account” on the CRA website for Canadians.
Get ahead start on 2016 tax planning by determining your 2016 contribution limit. Consider setting up a regular contribution that coincides with your current pay schedule (weekly, biweekly, monthly, etc) if you don’t already use this strategy. It makes saving so much easier by breaking it down into more manageable dollar amounts that you are less likely to miss. This strategy is also a great one for your non-rsp or non-IRA savings.
Consider immediately re-investing any tax refund. There are so many ways to make this money work for you and often we treat this as a windfall and the money is gone before we know it. We treat it like “found” money when really it just means that we paid too much in taxes. The average tax refund in the US is around $2700 according to a Forbes article that outlines 7 ways to use this refund. The average tax refund in Canada is a closer to $1600 but the ways to use this money are very similar as outlined in this Globe&Mail article.
Start getting ready for next year
If you don’t already have a filing/organization system that works for you then there is no better time than now to get one.
If you are are a small business owner or already starting to build your portable income then you will want to ensure that you have a good filing/record keeping systems in place that will allow you to substantiate any of your income and expense claims. Here are 7 tips to consider from Entrepreneur.com.
Your system can be basic as long as it adequately covers your need. For many folks, it is as simple as creating file in their main email labelled “Taxes Fiscal XX” and a physical file folder with a similar label. Any time you get an email receipt, invoice, tax form simply file it in the email folder until time to do taxes. Similar system for any mail or physical documents.
You may also want to consider going paperless and getting a scanner and a scanning app that you can use on your smartphone to keep track of receipts. If this sounds up your alley, it is worth reading this blog post from Donnie Lawson on his paperless home system. Another great blog post, from Home Storage Solutions 101, provides additional tips on setting up a system that will work for you.
Whatever you do (or don’t do) please, please, please refrain from dumping every receipt and piece of paper into a garbage bag and then handing it to your accountant 5 years later. Yes, true story from a family member who was also a small business owner. He had no system, he didn’t do his taxes for a 5 year period and his receipts were often impossible to decipher. Do make notes/annotations to your receipts to make it easier down the road.
If all else fails
Have a big glass of wine. That should help make tax time pain free or at least help dull the pain. I’m kind of joking but you can’t take life too seriously. You should definitely enjoy a glass of wine or some other celebratory beverage/activity once you’ve completed your tax return accurately and on time. Celebrate the wins.
Till next time,