Tax season is not a happy one for most Canadians. We fret our way through the entire process, generating a significant amount of stress along the way. Now that the tax season is over, we can all breathe a sigh of relief.
To make future tax seasons less stressful, start today with these important but simple tax planning tips.
An important step in planning for the coming year is looking back at past tax returns.
If you use the services of a tax professional, they should review past tax returns and notices of assessment and offer suggestions to optimize your tax situation for future years.
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It’s easy to put off managing your finances, especially when there’s no looming deadline. Trying to remember all of the expenses you incurred as long as 16 months ago is extremely difficult. You will miss fewer deductions by recording as you go.
Monthly bank reconciliation enables you to catch anomalies with your finances before it’s too late. Take a preliminary look at your potential year end by October or November. If possible, move some of next year’s expenses into the current year and delay income to next year to reduce your tax burden.
Do you have a shoebox for your receipts? It’s great that you keep them, but make your life easier and organize your receipts as you go.
Take a photo or scan of each receipt before it gets into the shoebox and register the transaction in your bookkeeping system. Plenty of bookkeeping and accounting systems are available for small businesses, including apps that allow you to capture the receipt on mobile devices.
Keeping farm business and personal finances separate is an important component of tax planning. Not doing so risks overlooking a legitimate business expense or inadvertently claiming a personal expense as a business deduction.
Open a separate bank account for your farm and apply for a new dedicated credit card to be used only for farm operation expenses.
You likely gave the government an interest-free loan this past year if you received a big refund from last year’s taxes.
An employer may be withholding too much tax if you or your spouse have off-farm income. You might be able to have less of your income withheld at source to increase your paycheque and put your money to work on your farm business sooner.
Effective tax planning is more than simply claiming your basic deductions. Take some time to ensure:
- You’ve chosen the most appropriate business structure for your company.
- Each of your investments are tax-optimized.
- Your retirement and your estate are protected.
- Your children’s education is planned for.
This list may seem daunting, but with help from experienced financial and estate planners, you’ll be in good shape for next tax season.
