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Important Points to Remember- Mistakes to Avoid
Common Mistakes You Must Avoid as a Taxpayer: We prepare both U.S. (1040, 1040NR) and Canadian (T1, T2) returns, some of the following information may or may not apply to you. 1. Late filing If you are late in filing your Canadian tax return, the first time penalty is 5% of the balance owing, plus 1% of your balance for each full month that your return is late to a maximum of 12 months. If you were charged a late filing penalty for any of the three previous years your late filing penalty would be 10% of the balance owing plus 2% of the balance for each full month that your return is late to a maximum of 20 months. If you file on time and don’t have the money to pay them will charge interest only, currently 5% for Canada There will be no penalties. There might be other consequences such as CRA or IRS freezing your bank account and even putting leans on your house, depending on which country’s tax return you are dealing with. Once filed, you can make arrangements to pay monthly installments of what you owe. 2. Improper or poor record keeping If you fail to report tax slips such as T4, T4A, T5018, T5, T3, CRA will catch the omission during their matching process. Each department receives a copy of all relevant tax slips for each corresponding country such as W2, 1040 slips for IRS, T4, etc.. for CRA issued on your behalf. When the annual rush at the end of tax season is over, their computers check what you have reported against the slips they have on file. If you fail to report an amount on your current tax return (missing slip) and you also fail to report any amount on the previous three years you may have to pay a federal and provincial repeat failure to report income penalty. For Canada Revenue Agency the penalties are currently 10% each on the federal and provincial tax owing. 3. Ignoring correspondence from the tax department Ignoring a letter from the tax authorities is not going to make them go away and if you irritate them they have full powers to enforce tax compliance. If you are not certain what the department wants, contact your tax preparer before you respond. In most cases the tax department will contact us first, if you have authorized KW BITS to represent you. Every year we resolve a lot of compliance issues on behalf of our clients without even contacting them. 4. Preparing your own taxes There is no problem with preparing and filing your own return. But, our fee for simple tax returns is so low that in most cases a very small mistake or discrepancy can cost you a lot more than the fee you pay us. 5. Business expenses Proper record keeping can save you money and headache. This is a good idea for several reasons. One, you know how your business is doing Secondly, the tax department might audit you at some point in the future (they can go back up to seven years) and the outcome may not be pretty. First of all beware that any amounts credited to your bank account can be considered your income unless you prove otherwise. Tax law requires you have to keep a reasonable set of books. You must have records to support all expenses you are claiming otherwise the expense will be rejected and the amount added back into your income. All receipts related to the earning of income should be kept for six years. 6. Charitable Donations & Tax Shelters donating money to a legitimate charity is a good thing. Make sure you donate to known organizations which have charitable numbers assigned to them by CRA or IRS. All receipts must have such numbers printed on them. Be skeptic of so called tax shelters offering big tax breaks for donations. They will always be challenged by income tax authorities. To this date none have stood up in court. If anyone offers you the opportunity to donate $10,000.00 to a charity, and promises to issue you a receipt for many thousands of dollars more than you donate be careful. Make certain you obtain independent advice. 7. Are you an employee or independent contractor? Your employer and you cannot decide that you are now going to be paid as an independent contractor and receive gross amounts without taxes, and relevant deductions being withheld at source. You should contact your accountant or lawyer or alternatively ask Canada revenue Agency or Internal Revenue Service for their booklet called-Employee or Self-employed form. If you don’t qualify to be considered an independent contractor, the consequences can be expensive. You and your employer are not in a position to decide that you are an independent contractor, rather the courts have decided on the nature of such relationships. If after receiving proper information you are still uncertain, you can ask for a formal ruling from the relevant taxation authority. 8. Keep your Notice of Assessment- NOA The Notice of Assessment often contains information on carry forward claims that can be utilized in the current tax year. Such things as non-capital loss carry forward and unused RRSP contribution can reduce your current year taxes. Home Buyer Plan contributions and adjustments. 9. Child care expenses Child care expenses paid to a day care or individual are normally deductible. You can pay day care expenses to anyone including a relative or grand-parent living in your home and who may have little or no income and who babysits. Any babysitting receipt issued by an individual must contain his or her full name and SIN number. 10. Caregiver amount if at any time in the tax year you maintain a dwelling where you and one or more of your dependents resided you may be able to claim a caregiver amount if their income is low. There are two categories: parents over the age of 65 years or relatives who are over 18 years of age and are dependent on you due to mental or physical impairment. The impairment must be certified by a licensed practitioner. 11. US and other international income Residents of Canada must declare their world income. Those with U.S. source income and US citizenship should also consider filing 1040 or 1040NR returns. CRA’s most common requests for back up documentation includes the following:
We have been in business since 1996 and have prepared over 25,000 Canadian and U.S tax returns of all types. Call or visit us at: A-50 Ontario Street South, Kitchener, ON., N2G 1X4, Canada
What’s new for this year? Children’s Fitness Amount – Under the proposed changes, the maximum amount of eligible fees for each child has increased to $1000. Family Tax Cut – A proposed non-refundable tax credit of up to $2000 is available to eligible couples with children under the age of 18, and is effective starting with the 2014 tax year. Universal Child Care Benefit (UCCB)– Under proposed changes, this benefit is being increased for children under age six. Effective January 1, 2015, parents will be eligible for a benefit of $160 per month for each eligible child under the age of six- up from $100 per month. GST/HST credit– You no longer have to apply for the Goods and Services tax/Harmonized Sales Tax (GST/HST) credit. When you file your return, the Canada Revenue Agency (CRA) will determine your eligibility and will advise those who are eligible to receive the credit. If you have a spouse or common-law partner, only one of you can receive the credit. The credit will be paid to the person whose return assessed first. The amount will be the same, regardless of who (in the couple) receives it. We can help if
Putting Together Your Tax Checklist If you are getting ready to prepare your tax return, you should understand what documents you need, back up your required information and put together a checklist. As you start to gather the items, you can simply cross them off the list. Getting Started Information from last year is useful when you are starting on your return. These documents include your prior year's notice of assessment and your prior year's tax return. They can be used to determine your RRSP contribution room and provide the opening numbers to carry forward to your current tax return. If you have dependents and/or a spouse, their information from the prior year is also required for a full picture of your situation and ensures that you are applying for all relevant credits. Gather all of the information regarding the income you have earned during the year. These may consist of T4 slips for employment, self-employment income, investment, interest and dividend income provided in T5, T4 and T3 slips and rental income. Pull together any potential deduction information, such as RRSP payments, daycare costs, medical expenses, charitable donations, tuition payments and transit passes. Include your home office expenses, such as the percentage of utilities, car expenses and property taxes related to your small business. Other Items If you are reporting a sole proprietorship, you need additional information to complete your return. You may need to supply more details about your accounting or bookkeeping records, your total sales or revenues for the year, and your total expenses, including any home office expenses. Rental properties are another common area for reporting on tax returns. Maintain records regarding how many units were rented and for how much, so you can calculate the rental income. Figure out the applicable expenses for deductions, such as maintenance costs, repair costs, interest payments, property taxes and insurance. Common Checklist
If you prepare your taxes on your own or have someone prepare it for you, gathering all of the applicable documents and necessary information could save you a headache later. All tax slips must be sent to you by the end of February of the following year. It is your responsibility to disclose all relevant information to CRA when you file your tax return. Be sure to investigate if some information is missing. Tax Preparation: KW BITS Tax Service provides BOOKKEEPING, COST ACCOUNTING and TAX PREPARATION SERVICES to clients throughout the Kitchener, Waterloo, Guelph and Cambridge areas. Our services are targeted toward small and medium sized businesses and we will happily customize any of our services based on each individual client's needs. Tax preparation services include:
KW BITS Tax Service----Links Canada Revenue Agency This is the web site of the Revenue Agency, and contains tax forms, publications, and other information. CRA My Account Here you can check for your tax refund, check your RRSP limit track your CCTB and GST/HST payments, change your return or your address, etc. EFile for Individuals This page provides you with all information on EFile, the electronic tax filing system that KW BITS Tax Service uses. Canadian Taxpayers Foundation A non-profit organization devoted to lower taxes, less waste, and accountable government. Income Tax Act The full text of the Income Tax Act. WSIB The Workplace Safety And Insurance Board of Ontario |
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