Filing tax returns can be a daunting task, especially if you have not kept adequate records. You may end up paying too much tax or worse pay too little and be questioned by the CRA for failure to report income.
By working with a professional chartered accountant, you can save valuable time as they have the expertise to file tax returns successfully. They will help you understand how tax filing works right from the get-go and help you steer clear of making any mistakes that could prove to be costly.
With tax season around the corner, at Henderson Fleischer Roller CPA, we want to help you reduce the heartache of preparing tax returns, by learning and understanding several concepts. Let’s start with this list of the most common mistakes people make when filing taxes.
1. Mathematical errors.
Mathematical errors such as making an incorrect addition on a list of expenses, transposition of digits, or adding an extra zero can prove detrimental when filling out a tax form.
An online calculator, like Moffsoft has a printable tape to solve this. You could also double check all your entries by using basic proofreading tactics, like saying the number out loud. Another option is to place a check mark at each number on your slip as you look over your entries.
If you discover you have incorrectly filed your tax return, ask your accountant to submit a T1 Adjustment to rectify the error, so that you’re not issued a penalty by CRA.
2. Forgetting to include revenue.
Forgetting to include revenue such as the home buyers plan, tips, honorariums, AirBnB revenue, small amounts of dividend or interest received, could lead to big trouble with the CRA. If the CRA has to adjust the tax form three times in five years, then you will be levied with a substantial penalty for failure to report income.
You can avoid this by keeping a list of all the miscellaneous revenue you receive and by reviewing your bank statements to identify all deposits.
If you discover you have missed reporting income after you have filed, ask your accountant to submit a T1 Adjustment or adjust your return online through the CRA’s Represent a client portal.
3. Filing employment-related income on Line130 of the income tax return.
Line 130 on the tax form is specifically for reporting non-employment taxable income received. Filing anything else on this line usually triggers a CRA query. You should discuss this income with your tax preparer and make sure to report it on the T1 income tax return correctly.
4. Forgetting to carry forward amounts such as capital losses.
It is possible to reduce tax by carrying forward: capital losses against capital gains made in the year; tuition tax credits and unused RRSP contributions. You can check that you have carried forward the correct amounts by logging into your CRA My Account portal. If you have not yet registered for My Account, you can register here – www.canada.ca/en/revenue-agency.html.
If you have authorized your accountant to represent you with CRA through the Represent a Client portal, they will have access to this information and will capture it on your tax return.
5. Not transferring tax credits to the family member who can make better use.
Would you agree that not transferring tax credits to the family member who can make the best use of these credits is not making the best use of tax deductions? On the other hand over claiming credits that are limited to the combined family income can raise eyebrows and the CRA will want the money back.
Errors in calculating your taxes can happen when family members don’t prepare and file their taxes together. Filing taxes together makes sense, especially if the goal is to have the least combined family taxes to pay.
You will be able to distribute items such as medical expenses, donations and the tuition tax credit to the family member who can make the best use of them. Spousal deductions, disability tax credit, eligible dependent, and the provincial credits can also be appropriately divided.
It’s worth remembering that the CRA will not adjust your credits between family members – it is up to you to make the best judgement. If you over claim the family credits, CRA will pay them out and then ask for the money back in September when they do their reviews. Speak to your accountant about how to file all your family members together. It will ensure that you pay the least amount of taxes for the combined family.
6. Not claiming deductions.
Expenses paid to maintain a professional designation or trade license are deductible. Not claiming these deductions means you are overpaying tax. It’s best to keep all tax-related receipts in a tax file for each year to give to your accountant or tax preparer so that you don’t forget to claim all the expenses you are eligible for at tax time.
To avoid these and other mistakes, reach out to us. With over thirty years of experience, we are professional accountants in Oakville, ON, and are well qualified to help you navigate through your numbers so you get the correct insights to make better business decisions to increase your bottom line profitability.