It’s the world’s least popular season, so we hate to bring it up during the month of love, but it has to be done. Filing your taxes can feel like a lot of work and information management, but preparation and planning can significantly reduce your stress and ease the process! Start early and give yourself ample time to get it done correctly the first time.
We teamed up with the experts at Wealthsimple to bring you 5 tips to help you cruise through tax season. You’ll be laughing all the way to the bank – with your return in hand.
1. File Your Taxes Early
While the deadline isn’t a holiday, it falls on the same date every year – April 30th! No need to give away extra money to the CRA, so get to it and file early and you should receive your refund within a couple of weeks. Procrastinators who wait to file at 11:59PM on April 30th will have to wait four to six weeks for their refund to be processed. Yikes, we’re stress sweating just thinking about it.
If you don’t file on time and you owe the government taxes, you’ll pay a penalty: 5% of whatever you owe, plus another percent per month for up to a year. If you owe taxes for past years and fail to pay the current year’s taxes, you could be assessed double penalties – 10% of what you owe plus an extra 2% every month.
Pro-tip: even if you owe the CRA money for 2018, they will waive the penalties if you file on time but aren’t able to pay in full by the deadline.
2. Contribute to your RRSP (before March 1)
March 1 is another deadline to remember, and one that is equally important. That’s because for many of us, the best thing you can do for your tax bill (and your future) is contribute to your RRSP before March 1.
Maybe you didn’t max out this year. Maybe you put off contributing all together and avoiding the thought of R’s and S’s and P’s. There’s still time! You have until March 1 to make your 2018 contributions. Why should you do it? Here are three reasons:
- RRSP contributions are a simple way to start saving for the retirement of your dreams (the one that happens on a beach in Hawaii)
- It’s an immediate tax relief. Every dollar you contribute to an RRSP comes off your taxable income. Say you make $75,000 and contribute $10,000 of it into an RRSP; in the eyes of the tax authorities, you’re only making $65,000 in taxable income — thus enjoying an immediate $2,050 savings off your tax bill. Yes, please!
- Though it’s earmarked for retirement, the government allows you to take money from your RRSP, penalty-free, to buy your first house or fund your education. The only catch is that you return the money into your account over the course of a fifteen-year payback period.
And while it might seem intimidating, opening an RRSP is easy. Wealthsimple will build you a smart, low-fee RRSP in just 5 minutes – no paperwork required.
3. Choose RRSP Over TFSA
If you have extra money that you want to put aside for retirement, it’s probably better to max out your RRSP than to put it into a TFSA. TFSAs are tempting because they don’t come with onerous rules about waiting until your retirement to withdraw. TFSA contributions are not tax deductible, so they won’t help your current tax bill. So, if you think you’ll be earning less in retirement than you do now, an RRSP is the best investment option.
To figure out which account is right for you, check out Wealthsimple’s TFSA vs RRSP comparison.
4. When it Comes to Deductions, Leave No Stone Unturned
There may be tons of tax deductions you haven’t considered – or don’t even know about, such as unreimbursed car travel for business or in-home care of an elderly parent and your home office. Skim through this thorough list of deductible items from the CRA before sending off your return.
5. Invest Your Tax Refund ASAP
In fact, immediately deposit your return into your RRSP – you’ll get a jump on those contributions and feel disciplined, virtuous, and in control of your financial wellbeing. Unless, of course, you’re carrying any credit card debt. You should always get rid of any credit card debt first, since no market gains will ever outpace the Annual Percentage Rate you pay on your plastic.
A big refund is great, but it may also be a sign that it’s time to make some changes. A large refund means you paid the government too much over the year – money you could have been putting to work for you. Consider making an adjustment and speaking with a financial advisor about how to get a better hold on your financial wellbeing.
Our friends at Wealthsimple can help you put your money on autopilot, so you get the most out of your hard-earned cash. Wealthsimple is offering – up to $10,000 managed free for one year – just for Carrot Rewards members! Open a smart, low fee investment portfolio in just 5 minutes – and start investing in your future!
This blog post is sponsored by Wealthsimple. Personalized accounts that fit your financial goals.