With the income tax deadline just around the corner for tax year 2014, which is April 30, 2015 it’s time to start thinking about what’s required to file. If you are a small business owner, you have until June 15th to file, but any taxes owning must be paid by April 30th. If you are entitled to a tax refund, although the deadline is at the end of April, the sooner you file, the sooner you get your tax refund.
Using a filing cabinet and separate receipts and other paperwork by category can be a good process, then use a spreadsheet to summarize everything. Organizing the spreadsheet by income, claimable expenses, small business and rental properties is a good organizational start. For the purposes of this article, I will focus on preparing to file personal taxes.
The first step in organizing your taxes is adding up all taxable income for the year.
- T4 – These are all sources of “other income” such as salary income, employment insurance, pension etc. The T4 slip will be provided by your employer/government.
- T5 – This slip usually comes in the mail from your investment brokerage and covers your dividend and interest income.
- Capital Gains/Losses – This will need to be tracked yourself and is a result of buying/selling investments within a non-registered account (or real estate). Here is an article on how capital gains tax works. As well, if you buy and sell the same security multiple times, here is how to calculate the adjusted cost base.
- Universal Child Care Benefit – If eligible for this program, you’ll get a statement from the government as to the amount received for the year. This amount can be claimed under the lower income spouse.
After figuring out the income, it’s time to get to the good stuff. That is, the tax deductible expenses to reduce income reported and tax credits to reduce income tax payable. They include:
- RRSP Contributions – The RRSP contribution slip(s) that you’ll receive are important as they may need to be submitted to CRA with your return. RRSP contributions are perhaps the largest tax deduction/deferral available for salaried workers.
- Charitable Donations – Usually when you make an online donation you’ll get an email tax receipt shortly afterward. If you are a monthly contributor, then they’ll most likely send you a large donation receipt at the end of the year. Note that if you paper file, you’ll need to include donation receipts with your return.
- Medical Expenses – For 2014 tax year, you’ll get the 15% tax credit for qualified medical expenses in excess of $2,171 or 3% of net income (lower income spouse) whichever is less. Note that health insurance premiums paid by an employee can be counted as a medical expense. For example, if the lowest income spouse makes $40k net (ie. after deductions) income per year, then medical expenses in excess of $1,200 ($40k * 3%) will receive the tax credit.
- First Time Home Buyer Tax Credit – This is a tax credit that was introduced in 2009 for new home buyers. New home buyers are given a non-refundable tax credit on the first $5,000 in expenses related to purchasing the home ($750 value).
- Education Expenses – If you had education expenses such as tuition, then you may be eligible for the tuition tax credit. As well, text books, student loan interest and an education amount might be applicable.
- Child Care Expenses – If you have children, there are a few child care tax deductions. If you have a spouse who stays at home, a spousal amount is transferable to the higher income partner, daycare expenses (up to $7,000 per child), children fitness (up to $1,000 per child) and arts programs (up to $500 per child). Note that the maximum tax deductible day care expenses will be increased to $8,000 per child starting 2015 tax year.
- Family Tax Cut – This is a new tax credit for 2014 that benefits couples with children (under the age of 18) that have significant differences in income. This tax credit will allow a notional transfer of up to $50,000 from the higher income spouse to the lower, with a maximum tax credit of $2,000. The calculations can get a little tricky, but fortunately, the tax software mentioned below automatically completes the calculation.
- Investment Loan – For those of you who have the risk tolerance to leverage your investments, then providing that the funds were used for eligible investments, you will be able to claim the interest on the loan.
- Transit Pass Tax Credit – For those of you who use the public transit system, you may be eligible to claim your transit expenses as a tax credit. For example, if you paid $1200 in transit expenses for 2014, you would receive a tax credit of $180.
After preparing all your paperwork prior to the income tax deadline, there are a few options. You can DIY via tax paid online software like UFile or TurboTax or Simple Tax. Other options include doing an old school paper return, or using an accountant.
Even if you have an accountant, you’ll save them time, therefore save you money if you have everything organized before submitting to them. Personally, I think that if it’s a fairly simple return with regular salary and perhaps some investment income, then an online program would be just fine. However, as the tax situation gets more complicated (your own business etc), then it may warrant paying for professional advice.
Note that I’m not an accountant so this article should be used for informational purposes only.