With this year's tax crunch rapidly approaching, you're probably fretting about two things: The amount of taxes you'll be paying and the fear that you'll miss the tax deadline and end up having to pay extra in penalties. Don't you wish next year could be different?
Well, it can be in some very important ways – like keeping more of what you earn and not worrying about next year's tax deadline – and all it takes is one simple step: Start early.
If you prepare your own tax return, starting early means you'll have all your tax information logically organized, making it easier to identify and take full advantage of every tax deduction and tax credit. If you use a tax preparer, being better organized means your preparer will need less time to do a good job, and that saves money, too.
Here are five simple rules for getting an early start on next year's tax savings:
Look back to save going forward. Check last year's return for any deductions you might have missed. Look for carryforward opportunities – like filling up unused Retirement Savings Plan (RSP) contribution room – that could potentially reduce your taxable income.
Organize early and often. Establish a simple filing system that separates your tax information by type – income, deductions, credits and so on.
Save all your receipts. Be sure to know about, and keep track of the many expense items that can significantly reduce your tax bite – such as moving expenses, accounting fees and investment management fees.
Keep more of what you earn. If your payroll deductions deliver a fat refund and you're confident the same thing will happen next year, you can apply to have your employer reduce the amount of tax deducted from your paycheque – and keep more of your money in your hands that you can invest.
Make regular tax payments. If you're self-employed and required to make regular tax payment instalments through the year, get them in on time to avoid interest penalties. And be sure to set aside enough cash to pay any outstanding taxes due at the tax deadline date.
When you employ a little tax discipline through the year, it's a safe bet that you'll save on taxes and tax prep time next year. By the way, tax time is the perfect time to review your financial situation. With every aspect of your financial life laid out in front of you, it's easier to measure your results against your objectives. That's why it's a good idea to consult me as financial professional to make sure you're using all the tax-reduction strategies available to you and to keep every other aspect of your financial life on track.
Noël Hémond, Pl. Fin.