If you have not filed your income tax yet by the time you read this newsletter/blog, chances are, you are thinking about doing it soon, especially if you have a refund. Why would you not want to get your money back sooner? Why would you want to lend your money interest free to the government? J
Now, don’t panic if you have not filed your taxes yet. Continue reading to find steps to file your tax and at the end of the writing, you’ll find some tips to minimize your tax.
Collect your Receipts
Hopefully you have been putting away your receipts in one place so it would be easy come tax time. If not, then assigning an envelope or a box for all your receipts for 2015 tax would be a great idea. J Want to go a step further? Collect your receipts according to categories. For example:
- Clip together receipts to claim children’s fitness amount.
- Clip together receipts to claim children’s arts amount.
- Clip together all out-of-pocket (if reimbursed by insurance or others, do not claim) medical expenses receipts for you, your spouse, and your children (17 years old or younger). Separate your dependents’ receipts if they are 18 years old or older.
- All donations receipts are clipped together as they are received throughout the year.
Set aside some Time
Make time for a few hours or a day or longer (depending on your tax complexity) to actually do your tax.
File your Tax
You can choose to file your tax by paper (mail) or online (Netfile) or have a third party file it for you (Efile).
1. Paper filing would mean that you use pen and paper to file your taxes. You would
a. fill out tax forms, available:
- at post offices, or
- print them from Canada Revenue Agency (CRA) website www.cra.gc.ca website, or
- call CRA (800-959-8281) and request one to be mailed to you),
b. attach your receipts (make a copy first for yourself to keep at home in case the mail gets lost), and
c. mail both tax forms and the receipts to your tax centre.
2. Netfile-ing would mean that you must select a software you would use from those pre-approved by Canada Revenue Agency (CRA). You can see a list of these here: http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/netfile-impotnet/crtfdsftwr/menu-eng.html#q2 or type “Certified software for the 2015 NETFILE program” in CRA website search area (www.cra.gc.ca). Your consideration in choosing which one to use may be:
- the price (some may be cheaper if shared by a few users),
- its ease of use,
- its reliability and
- customer service.
3. Efile-ing would mean that you must select which third party you trust to file your tax. Again, this may involve some research from your part. Your consideration for choosing who to use may depend on:
- the price (don’t just pick one based on the cheapest price),
- its reliability
a. Do they stand behind their work?
b. Will they correct their mistakes (for free)? If there are penalties and interest resulted from their mistake(s), will they pay for the penalties and interest or at least share a portion of them?
c. If you are chosen to be pre-assessed, post-assessed, reviewed or audited by CRA, will they help you go through the process?
d. If you receive any communication from CRA as a result of the tax they file, will they help you understand the communication?
e. Are they available outside of tax season (after April 30th) to answer any of your questions and concerns?
- and customer service
a. Are the tax associates helpful, courteous, knowledgeable?
b. Can they explain (or at least attempt to explain) your tax situation to you?
Whichever method you choose to file your tax, make sure you keep a copy of your tax and receipts for at least 6 years. If you can afford the space, perhaps you should not throw away any tax-related papers in case CRA visits your file.
It’s been Filed; What’s Next?
When CRA has received your tax, you will receive a Notice of Assessment that contains a summary of everything. Keep this for your record. You may need it to know your Registered Retirement Savings Plan (RRSP) limit, any capital gain or capital loss, and others.
Sometimes, CRA may re-assess you and asked for documentation from you. For example, if you claimed $1,000 donation credit, CRA may want to see your receipts if you have not submitted them (for example, you did Netfiling).
Some Tax Tips to Minimize your Tax
Depending on your individual/family situation, there are many ways to minimize your taxes. Here are a few of them.
1. Combine your and your spouse’s donation for the last 5 years.
- If it’s more than $200, you would get
a. 29% federal non-refundable tax credit and
b. 14.7% BC provincial non-refundable tax credit.
- If it is $200 or less, you would get
a. 15% federal non-refundable tax credit and
b. 5.06% BC provincial non-refundable tax credit.
2. Combine your, your spouse’s and your children’s medical expenses. If it’s more than 3% of your or your spouse’s net income, you can claim non-refundable tax credit for your medical expenses. The spouse with lower net income and has taxable income should claim the medical credit. Otherwise, if the lower income spouse has no taxable income, the medical credit would not be useful (no tax to be reduced); in this case, the other spouse should claim the medical credit.
3. If you recently bought your first home, you may qualify for up to $5,000 home buyers’ amount. You can claim this yourself or split it with your spouse.
See the CRA website (www.cra.gc.ca) for more information or seek a tax professional’s advice.