You are probably thinking that the tax filing process is a walk in the park. You fill out your basic information, submit it to the CRA, and voila – you have more money! Unfortunately, this is not always the case. Tax season can be stressful for many of us because there are so many ways we can mess up our taxes and end up with a hefty penalty from the CRA. We want to help you avoid these mistakes by sharing some of the most common ones with you here.
In truth, it is easy enough to avoid any potential problems if we just stay on top of what needs to be done throughout each year. But when life gets busy and we miss a step, we can land in trouble with CRA very quickly!
Tax preparation software has made things a little easier for us by collecting the information from our bank statements and other documents that we need to complete our return. This means that you should have everything at your fingertips when trying to determine whether or not you are eligible for certain tax deductions. However, even this they are a guarantee that there will not be errors in your return so always double-check! After all, the last thing you want is to have filed everything correctly but still owe CRA money simply because you missed something.
Here are the most common tax mistakes that Canadians make and how to avoid them:
1) Not claiming your spouse or other qualified dependents.
Although this is a very common mistake, it happens enough each year to be included on this list. To claim someone as your dependent, they must meet certain criteria including not being able to support themselves financially or living with you for more than six months of the year. If these requirements are met, there are many benefits to claiming dependents on your return! You will receive a slight increase in your basic personal amount which reduces the amount of income tax that is calculated from your taxable income – meaning that you will pay less tax overall If you are feeling overwhelmed by all of these rules and regulations, do not worry! As long as both you and your spouse are earning income, it is likely that one of you will be able to claim the other on your taxes even if the requirements are not all met exactly.
2) Not claiming all of your deductions!
This is one of those catch-22 situations… we want to claim everything that we are entitled to because it will reduce our taxable income and therefore our tax bill. However, if we claim too much then CRA they are happy because we will not be paying enough which means they will send us a bill to make up the difference. This is not what we want! Unfortunately, it can be difficult to determine which deductions you are entitled to and which ones you are not. That is why it is always a good idea to consult with a professional (such as an accountant) before filing your taxes – they may be able to help you avoid making this mistake and save you from getting into trouble later on down the line!
3) Not submitting your tax return by April 30th.
If we miss this deadline, CRA will charge us interest and penalties on the balance owed so file ASAP if at all possible! File even if your return is perfect, just get it in there because delays come with additional costs. If you owe money, you can submit your return but include a note explaining that you are doing so and will provide the outstanding payment as soon as possible.
4) Claiming expenses that do not qualify for tax deductions.
It can be easy to get carried away with this one because there are so many things that we want to deduct! For instance, home renovations or buying new furniture may seem like valid deductions but unfortunately, they are not always considered to be legitimate by CRA so take lots of pictures and save all of your receipts to prove later on if necessary. The same goes for donating blood plasma or plasma TVs – while these things may help out someone who really needs it, you will not receive any rewards for them come tax time. In most cases, the only thing that you can deduct is the cost of medical expenses that you have racked up throughout the year.
5) Not keeping records!
This one goes back to the idea of keeping good tax records – if you do not have anything to show for it, then you cannot claim it. This includes receipts, documentation, and written evidence of all deductions… no matter how small they may be! If there is any chance that something might qualify as a deduction, make sure to hold onto it to prove your case later on down the line. We suggest always carrying a notebook or portable hard drive with you so that you have plenty of space for storing things as necessary so that nothing goes missing at the last minute.
6) Forgetting about benefits or tax credits.
There may be many reasons why you are entitled to tax deductions or credits – for instance, if you have children under the age of 18 then there is a good chance that child benefit payments will qualify as reductions in your taxable income. If you are not already taking advantage of this or any other benefits that apply to you, now might be the time! While researching your options can be time-consuming and difficult, it is well worth the effort because all of these things add up over the course of the year. It can take some additional work on our part but filing taxes is supposed to be easy so plan!
The most common mistakes people make with their taxes are not understanding what they are actually paying for and failing to plan ahead. It is easy enough to avoid any potential problems if we just stay on top of what needs to be done throughout each year – but unless someone else is handling your finances, it can feel like a daunting task. Reach out today and let us take care of everything so you do not have to worry about a CRA audit next year!
