It’s That Time Of Year! Avoid The Top 10 Most Common Tax Mistakes
Despite all the uncertainty in the world, we know there are only two things in life that are certain – death and taxes. As tax season approaches, it pays to be aware of the top mistakes people make when filing their taxes.
Preparation is key as the last thing you want is to have to do the exercise all over again.
Here are the top 10 most common mistakes people make when filing a return:
1. Not Submitting Contact Information
It’s up to you to inform the Canada Revenue Agency (CRA) of any changes to your contact information. If they need to reach you and can’t, they will make a decision based on the information they have in front of them. The end result is a potential larger tax bill for you.
2. Not Keeping Proper Records
Remember to keep proper records to support any item you put on your tax return. In the event of an audit, you have to show that you can back up your figures with valid records. Be sure you’re organized and keep track of your income and expenses. File all receipts with their corresponding claims.
3. Employee vs. Employer
With the increase in remote workers and contractors, there is still a bit of a grey zone in terms of whether to consider yourself a contractor or an employee. From an employer perspective, companies like to classify people as contractors to get out of paying EI and other benefits. Be careful you know how to classify yourself or your “employees” or the CRA can intervene and charge penalties and/or interest on any withholdings you didn’t make.
4. Not Writing Off The House and Car
Many small business owners forget to claim qualifying expenses including their house and car. A mortgage can be pro-rated against the percentage of your house your office represents. Property tax, hydro and water can be included as well. Don’t forget to keep track of any mileage related to your business. You can also write off a portion of your car.
5. Not Paying Your Taxes on Time
It’s essential to pay your taxes on time to avoid paying penalties. April 30 is the deadline for filing individual tax returns and June 15 for those who are self-employed. For the self-employed, taxes owing are still due April 30 although the return doesn’t have to be filed until June. It pays to file on time!
6. Claiming Invalid Tuition Fees
Canadians often claim tuition fees that aren’t eligible for a tax refund.Fees reimbursed by your employer cannot be claimed. Extracurricular social activities, transportation, parking and board and lodging are also not eligible.
7. Not Reporting Common Law Status
Couples who live in a common law relationship must report as common law and will get the same treatment as a married couple. Reporting as common law also gives you the ability to claim a tax credit for a low income partner.
8. Claiming Ineligible Medical Expenses
Not everything is eligible as a medical expense. Vitamins and supplements, over the counter medicine and bandages aren’t eligible. Items that you are allowed to claim include eyeglasses, dentures and premiums to private health plans. To be eligible they must have been deducted from your pay and not paid by your employer.
Be sure to keep all supporting documents in a safe place in case the CRA needs to see them later.
9. Pushing The Boundaries on Eligible Expenses
Many people try to claim expenses for items that go way over the top of what they’re entitled to. Someone claimed they didn’t file because they couldn’t understand the tax return. Another tried to claim ballet lessons as a childcare expense. That said, other outrageous claims have been accepted so for some it’s worth the effort. The worst they can say is no!
10. Not Budgeting for Tax Season
Every year there are some Canadians who don’t budget for tax season. As with most things in life, it helps to plan ahead. No one wants to find out they owe money then not have the resources to pay up!
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