The holidays are a busy time of the year, but don’t forget that tax season is just around the corner. To help you prepare for the upcoming tax deadline, review our holiday tax checklist to make sure you haven’t missed anything.
Sign up for an online account with Canada Revenue Agency (CRA).
If you haven’t already done so, sign up for online access to your tax file with CRA. Your individual login will provide you with lots of useful information such as access to prior notice of assessments, RRSP limits, TFSA limits and more.
Review your tax balances and limits
With online access to your tax account, check the following balances:
RRSP limit: The deadline for contributing to RRSPs is March 1, 2019, so if you intend to contribute to an RRSP, review your contribution limit now and start budgeting for it.
TFSA limit: You can contribute up to $5,500 each year to a TFSA starting on January 1st. If you have made withdrawals in the past or haven’t always topped up your TFSA annually, check how much you can contribute now and take advantage of the tax-free savings. If you have money or other investments earning interest or investment income sitting outside your TFSA, you may want to transfer them into your TFSA if you have the room. There could be a tax bill on the transfer, in cases where the investments have appreciated.
Tuition credits: If you have recently graduated, check to see how many tuition credits are remaining. The larger the number, the less tax you will have to pay. If your tuition credits are low (under $100,000), start putting money aside now for a larger tax bill than prior years.
Installments: Check your installment balance against the required payments. If you are short on installments make sure you top up as soon as you can to avoid interest.
RESP: RESP contributions are not found on CRA’s website, but you may want to double check to see if you have made a contribution for your child. For annual contributions of $2,500, the government will provide your child a top up of $500.
Estimate your income
If you receive a salary, you can look at your latest pay stub to get an idea of what your expected salary will be for the year before you even receive your T4.
If you receive associate/business income, you may want to start tallying up your income to get an idea of what your total annual income will be.
If you pay yourself a dividend, tally up the money you have taken out of your corporation. You will need this information to prepare tax slips soon, so it doesn’t hurt to get a head start now. Remember that the new tax rule changes in 2018 mean dividends paid to family members that do not work 20 hours or more per week throughout the year for your business may be considered unreasonable and subject to a much higher tax rate.
Finally, if you have an account called “Due from shareholder” or “Shareholder advance/loan,” on your corporation’s financial statements, speak with your accountant now to see if this might affect your upcoming personal income taxes.
Review your expenses
If you have donations, medical expenses, child care expenses and other tax-deductible expenses, you should see if you have the corresponding receipts. If not, you still have time to ask the particular organization to reproduce a receipt. Charitable receipts are not always available right away, but at least you will know what receipts are still outstanding. If you want to get a tax break on your personal tax return by making a donation, make it before December 31st so that it will count for your upcoming tax return. If you have a corporation, you might consider donating via your corporation.
For child care expenses, make sure the lower income spouse has a salary or business income so that they can deduct child care expenses. Depending on your situation, you may have to issue a salary to the lower income spouse before December 31st.
A little work now will help you avoid the sticker shock of an unexpected April 30th tax bill. Enjoy your holidays, but do take some time to get your financial house in order to make the following months a lot less stressful.
This article was prepared by David Chong Yen*, CPA, CA, CFP, Louise Wong*, CPA, CA, TEP and Eugene Chu, CPA, CA of DCY Professional Corporation Chartered Professional Accountants who are tax specialists* and have been advising dentists for decades. Additional information can be obtained by phone (416) 510-8888, fax (416) 510-2699, or e-mail firstname.lastname@example.org / email@example.com / firstname.lastname@example.org . Visit our website at www.dcy.ca. This article is intended to present tax saving and planning ideas, and is not intended to replace professional advice.