Paying the piper
How to avoid costly mistakes when filing your income tax return
OTTAWA CITIZEN
It’s that dreaded time of year again when you delve through piles of receipts and attempt to reap the biggest tax refund possible. Tax season can be stressful, but Rosa Iuliano, a chartered accountant with Collins Barrow Ottawa, says planning ahead can help you avoid some costly gaffes. Here are her top tips.
KEEP TRACK OF RECEIPTS
Start a tax file at the beginning of the year and keep track of all receipts, no matter how small. “Those $20 prescriptions add up to some big dollars,” says Iuliano.
DON’T FORGET AN INCOME SLIP
The days of paper filing are nearing an end, meaning good bookkeeping skills are more essential than ever. “CRA (Canada Revenue Agency) is really emphasizing people to e-file their returns, so spot checks are now more common,” says Iuliano. Forgetting an income slip can cost you. Failure to report penalties can be as high as 10 per cent of the income you missed reporting. “Forgetting to report $1,000 of income for a small part-time job you did back in February, could result in a $100 penalty,” says Iuliano. If you do forget a slip, be sure to file a T1 adjustment request immediately. “If you report it before they catch it, then at least you will avoid the penalty,” says Iuliano.
FILE ON TIME
The CRA has no patience for tardiness. Late filers will face a penalty of five per cent of any money owed and one per cent for every month after. Even if the government owes you a tax refund, Iuliano says that’s no excuse for filing late. “If you don’t file within a three-year time frame, they don’t have to refund the money to you,” she says.
DON’T LET MONEY-SAVING CREDITS PASS YOU BY
Iuliano says the most common mistake people make when filing taxes is overlooking important money-saving tax credits. Here are some of the most commonly overlooked credits:
CHARITABLE DONATIONS
The government rewards philanthropy, allowing you to deduct 15 per cent of the first $200 and 29 per cent of anything in excess. One trick Iuliano tells clients is to save up charitable receipts to ensure you get the most bang for your buck. “If you gave $100 in 2012 and you’re planning to give $100 in 2013, you’re better off not to claim the $100 this year and save it for 2013,” says Iuliano. Donations can be claimed up to five years after they were made, provided they haven’t been claimed.
OUT-OF-COUNTRY MEDICAL
Do you purchase travel medical insurance when you go on holiday? Don’t forget to add it to your prescriptions, dental visits and chiropractor bills. Medical expenses are credited based on a percentage of income (the lesser amount of $2,109 and three per cent of income).
MOVING EXPENSES
“If you move at least 40 kilometres closer to your place of work, then you can offset your moving costs against income,” says Iuliano. Everything from hiring a moving company, renting a van, temporary living costs for a maximum of 15 days, and even legal and real estate commissions can be deducted.
HOME-BASED BUSINESS
If you work from home, you can claim a portion of your mortgage interest or rent, property taxes, insurance and utilities. But your work space can’t be your kitchen table. “It has to be a designated space where you’re meeting clients and conducting business activities,” says Iuliano.
CHILD CARE
You can deduct a maximum of $7,000 for each child under the age of seven, and $4,000 for each child between seven and 16.