Tax season can feel like facing a mountain, but with some prep and strategies, you can make it much smoother and stress-free. Here are some key tips to help you prepare for a better tax season next year.
Stay on top of instalments
If you owe more than $3,000 in taxes, you will have quarterly instalments to make. Whether it's for GST, personal or corporate taxes, timely payments are key. Being late with these instalments will incur a pesky 10% interest charge from the CRA.
Dive deeper into the topic with our blog: Do I really need to make tax instalments?
Communicate with your accountant
Keep your accountant informed about significant financial changes, and stay connected throughout the year. This includes:
Buying and selling assets or investments
These transactions can have major tax implications. Please send us all purchase and sale documents as soon as the transaction happens. For any assets sold, we’ll need the sale and purchase documents. This is especially true for real estate – even if it’s your principal residence.
Booking any meetings offered with your accountant
We always offer three meetings a year to our clients:
- Year-end review meeting: Once the year-end is complete, generally 2 to 3 months after your year-end.
- Personal tax meeting: In March/April
- Mid-year check-in or tax planning meeting: This is great to do sometime between September and December.
Responding to True North communications you receive
Don't forget to whitelist our True North email addresses to ensure you receive all our important updates! Please respond to our emails, voicemails and texts so we can ensure your taxes are done correctly and on time.
Avoid tax surprises
Don't let tax surprises catch you off guard! Take a thorough look at all sources of income and expenses.
Rental property income
It can be challenging for landlords who had negative cash flows all year but still had taxable income at the end of the year. It’s because you probably paid down a chunk of your mortgage each year, considered profit or “taxable income.”
Review your rental income and expenses regularly to ensure you have all the necessary documentation and understand your net income.
Maternity leave income
Many people don’t realize that most government money is taxable. This includes EI (including mat leave), OAS and CPP. The government often doesn’t withhold enough (or any) tax from those mat leave or EI cheques. However, the income is still taxable. If you've received maternity leave benefits, check how this affects your taxable income.
Employer not withholding enough tax
Consider asking your employer to withhold more tax from your pay cheques if you anticipate owing money. This can prevent a large tax bill at the end of the year.
Your payroll department has a TD1 form and you can get them to withhold more or less tax from each pay cheque. If you’re self-employed, ask us; we can help you out, too.
Get on a tax plan
If you haven't already, reach out to your accountant to create a long-term tax plan. This will cover items such as:
- How much compensation you’re taking from your corporation
- The type of compensation (salary vs. wages) and timing
- Income-splitting opportunities
- Tax brackets
- Instalments
- RRSPs
- Other tax minimization techniques include shareholder loans, a capital dividend account, tax loss carryforwards, RDTOH (refundable dividend tax on hand) and GRIP (general rate income pool).
Dive into the details in our blog: What is tax planning?
Keep your documents secure
Hang on to your notice of assessment (NOA)
Your NOA contains important information about your tax refund, any amounts owing, and your RRSP contribution limit. It is also necessary to reference it in future dealings with the CRA.
Keep your physical and digital documents safe
Use secure storage solutions for both physical documents (e.g., a locked filing cabinet, fireproof safe, safety deposit box at a bank) and digital files.
You can use trusty storage solutions such as HubDoc and SharePoint to ensure your digital files are secure. Also, make sure your digital files are easily accessible – naming conventions are helpful.
Regularly back up your digital documents to prevent loss due to hardware failure or other issues.
Read our blog, Cybersecurity tips to protect your small business
Name your digital files properly
Proper organization of your digital files can save you (and us!) a lot of time and hassle:
Organize by category and year
Create folders for each tax year and subfolders for different types of accounts (e.g., receipts, income statements, investments).
Create a clear naming system
Use a consistent and descriptive naming convention for your digital files, such as “Jane Smith 2023 T4.pdf.” This makes all documents easy to locate when it’s time to compile your tax return.
Here are the naming conventions we like to see for personal taxes:
- Husband’s name YYYY T4
- Husband’s name YYYY NOA
- Husband’s name CRA Letter
- Wife’s name YYYY T4
- Wife’s name YYYY NOA
- Wife’s name CRA Letter
- Medical receipt 1
- Donation receipt 1
For business documents, Hubdoc will name your uploaded receipts for you, and sort them into vendor folders, as well as make them searchable by Transaction Date and Upload Date.
If storing receipts elsewhere, use this naming convention: YYYY MM DD Vendor.pdf
See our blog for more tips: What’s the best way to organize receipts for small businesses?
Respond to CRA audits and process reviews
The CRA relies on artificial intelligence (AI) to find discrepancies or unusual items on your tax returns. When AI finds something, a process letter is automatically sent to you. Then, it's up to you to respond within 30 days, or your file gets passed on to an agent for investigation.
Responding to these letters as soon as you get them is super important. And if you're a True North client, we've got your back — just send those letters our way.
Read our blog, Not another brown envelope: CRA support
Keeping your accountant in the loop, staying organized, paying on time, expecting the unexpected and safeguarding your documents are all crucial ingredients for a stress-free tax season.
Got more questions or need some extra support? Contact us. Here's to smooth sailing through tax planning season!
Read more about Personal Tax topics that may be helpful to you and your small business.
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