What Would You Do Differently for Next Year’s Tax Return
Now that you have filed your 2011 personal income tax return – ask yourself this – is there anything I should do differently for 2012? Most of us wish we could pay less income tax. Are there any strategies you could use to make that happen?
Ask yourself when you looked at your return; did you have any of these thoughts?
1. Did I wish that I had paid my installments? Not paying your installments will lead to more interest being charged. The next installment is due June 15, still time for you to plan for that.
2. Did I wish that I had made a contribution to my RRSP – You could start a monthly contribution today, much less painful then coming up with the money at the last minute.
3. Did I wish I had saved some of those charitable donation receipts or the medical receipts? Start a file folder and put all those little receipts in it. Also when you give a donation online – print the email out right away and put it in the folder.
4. If you are self-employed – if you actually pay your kids for the work they do for your business, then you can claim their wages as a deduction – but you have to pay them regularly throughout the year.
5. While we are talking about kids, keep a file on the payments you make for their physical activities, soccer, hockey, gymnastics as well as the payments you make for music and art lessons. You can stop keeping the receipts once you get to $500 per child, as that is the maximum allowed for each credit. (One credit for fitness one for art.) Also remember to keep receipts for childcare.
Think about your situation and see if there is a way to lower your 2012 tax expense
Ten Personal Tax Tips – April 2012
Tax season is upon us again – only 17 more days until April 30th.
Ten questions to ask yourself:
1. Do your kids take music or art lessons? There is a new credit.
2. Are your kids physically active? Children’s fitness credit is still available.
3. Did you graduate with a degree or diploma since 2008 and live in Nova Scotia? There is a provincial credit which is available for up to 6 years.
4. Do you pay medical premiums? Premiums are a medical expense, but you need to have enough medical expenses that they exceed 3% of your net income.
5. Do you receive pension income? If so remember it can be split between spouses.
6. Do you support charities? Find those receipts to claim the credit.
7. Do you use a home office? Could you claim it?
8. Do you drive for employment or business? Do you have a mileage log and receipts?
9. Did you buy a new home in the year? There is a credit.
10. Do you pay interest on any money that you have invested? If so that is a deduction.
Canada Pension Plan Changes for 2012
If you were wondering whether the Canada Pension Plan has enough funding the 2012 changes might just provide that answer.
Canadians who are receiving CPP benefits did not used to have to continue to pay into the plan if they were still working. In 2012 those rules have changed, starting this month.
Do you have employees who are receiving CPP and still working for you?
Any employee who is not 65 years old as of yet must make CPP contributions based on employment income earned in 2012 whether or not they are already receiving CPP. There are no other options. And as an employer, you have to match the contribution.
If your employees are over 65 and yet not 70 there is an election that can be filed with Canada Revenue Agency to avoid CPP contributions. The form should be filed this month. This is the link.
http://www.cra-arc.gc.ca/E/pbg/tf/cpt30/cpt30-11e.pdf
Questions? Let us know!
Three Things To Do At Year End
With year end just days away – and since I may be the only person still working – I thought it would be a good time to remind business owners that there are a few things that should be done at year end to make your life simpler in 2012 ….
Count Inventory – If you sell a product, you need to know how much inventory you have on hand at the end of your year. The only way to know the answer to this question is to actually count it. This is something for you to do New Year’s Eve or potentially on New Year’s Day. The question being do you count before the hangover? Or after?
Read Your Odometer – if you use your vehicle for business and your business is not incorporated, or you claim vehicle expenses on your personal tax return then you need to keep a mileage log. If you keep a mileage log in order for this log to have any credibility you need to have the opening odometer reading at the beginning and the end of the taxation year. So on your way to count your inventory go ahead and write down the odometer reading on your vehicle.
Bill your clients- make sure you have billed all of your clients for work done in this year. If you have a service business and have work that is not billed, it is called work in progress and is a form of inventory. If you have billed it, it is accounts receivable if you have done the work and you have not billed it then it is work in progress. Either way you have to figure it out.
For those of you who follow me on twitter (@debipev) you will be receiving further reminders at midnight on December 31…
Don’t Let December Ruin 2012
There is no avoiding the holidays! The Christmas lights are starting to show up on houses, the advertising started weeks ago and the invitations are starting to roll in.
For business owners the holidays have their own challenges. There are statutory holidays which mean salaries are being paid but no revenue is being earned, in fact for many businesses you can pretty much write off the last two weeks of December as far as making any money. Did your business plan consider this slump? Of course for retailers it is crazy busy and the hope is that this month will make the whole year a success.
December can be a month where we suspend our normal mind set and spend money we do not have, which has an impact on the rest of the year. Keeping December under control will go a long way to making January a happier time!
So what can we all do to keep the holidays in perspective?
1. Make a budget for presents and entertaining and stick to it.
2. Don’t spend money you do not have – which will end up on your credit cards for a long time.
3. Accept invitations from the events you want to attend, don’t go everywhere, you will just get tired and cranky.
4. Think about what part of the holidays mean the most to you and make sure that you spend your time on those activities. Consider this a time budget.
5. Business owners – plan now (if you have not already) for how you are going to cover the extra costs and reduced revenue of the holiday season.
Good Tax Reason to Have a Will
A will is a document that explains what you want done with all of your stuff when you die. It can be as simple as leaving everything to your spouse or as complicated as a long list of items, each given to a different individual. The second type of will allows people to argue over who gets the blue vase. For some reason people do not want to talk about their will, maybe assuming that they will die sooner if they mention it.
There are many good tax reasons to have a will. The most important of those reasons is called the spousal rollover. This rollover means that any item you leave to your spouse will not be taxed on your death.
Let me explain that better. When a Canadian resident dies they are deemed to have disposed of everything that they own at the fair value on the day of their death. This means that if you own stuff that is worth more than you paid for it, you are going to pay tax on 50% of the difference. As an example if you own shares of the Royal Bank and you paid $5000 less for them than they are currently worth – you will add the capital gain of $2,500 (50% of the $5,000) to the income that is taxed on your final return. If however you leave the Royal Bank shares to your spouse – there is no tax on those shares and they are transferred to your spouse at the amount you paid for them. This is a good thing. Leaving your RRSP or RRIF to your spouse works the same way, those plans are not taxed. Leave your RRSP to adult children and the total amount of your RRSP will be added to your final tax return.
It is important to have a will. If you die without one, which is called dying intestate, then your heirs will have to apply to a court in order to obtain any of your assets. If you have more than one heir, a fight could result and the court will have to decide what you would have wanted. Don’t leave people in suspense—write a will.
Should You Pay Down Debt Or Borrow To Invest?
We live in challenging economic times. Making this simple decision about whether it is time to pay down debt or time to borrow to invest, has become complicated. Interest rates are set to stay at record low levels for the next couple of years in the United States and this will likely mean low interest rates in Canada as well. Typically, low interest rates tempt people to borrow. However, economic growth is predicted to be slow over the next two years as well and the world economy may be entering a recession. Slow economic times tempt people to save their money and pay down their debt. If you are paying attention you will see that these are two opposite effects!
So do you pay down debt because times are slow or do you borrow money because interest rates are low?
If you have debt then you pay interest. If interest rates increase then you pay more interest and maybe you have a harder time making minimum payments. If you pay a lot of interest, then you don’t have money to spend on other things, or to invest for the future. However, if you borrow money to invest, you can deduct the interest that you pay on that loan. Being able to deduct the interest means that the interest rate is even lower, depending on your tax rate.
Does it make sense then to borrow money to make investments? Yes – provided that you can find investments that will earn a higher rate than the interest you pay. What investments should you choose for your hard earned money? I am not an investment advisor but I would suggest that you consider investing in anything baby boomers might want or need. Think health care for example. The stock market often looks like a mystery but the baby boomers getting older is a fact!
Back to your strategy- should you borrow and invest, or pay down debt and feel more secure. Here are a couple of thoughts:
1. Refinance any debt that you can at the low rates that are currently in effect.
2. Borrow money to invest in anything that will earn more than the current rates of interest, this could be your business, real estate or shares.
3. Consider investing in the market if you have more than 10 years to go before retirement, as stocks are low now, but should eventually increase in value.
4. Don’t borrow to increase your lifestyle, borrow to invest for the future.
5. Don’t budget yourself too tightly, live is uncertain. You have to enjoy today, there may not be a tomorrow.
I will close on THAT note. Think about your financial strategy and take advantage of low interest rates, one way or another.
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