Tax Reconciliation: Tax Reckoning?
Have you filed your taxes yet? Is the outcome similar to last year? For many taxpayers that were not affected work-wise by the pandemic, your tax situation may be about the same.
For taxpayers with similar income and situations compared to the previous year, the only change may be the increase in the Climate Action Incentive, also known as the carbon tax rebate. Every family receives it and this year it’s just a bit more.
But for many taxpayers who have lost their job, or have reduced employment income, their tax situation is very different. These taxpayers have received the COVID benefits like CERB and CRB.
The good news is most taxpayers are finding out that the amount they owe is not as much as they had anticipated. It’s a good phone call for me when someone owes more in taxes than last year, but they are relieved that it isn’t as much as they had thought it would be.
We think of preparing and filing personal income tax returns as tax reconciliation. We reconcile your taxes payable versus how much tax has been deducted from various sources of income.
If your tax payable is less than the tax withheld, then you will get a tax refund. If your tax payable is more than the tax withheld on your sources of income, you have tax owing and you need to pay the difference.
How do we calculate your taxes owing? It’s not simple. It’s not just based on your income. It’s the various tax credits available that make tax preparation “complicated”.
Tax credits do not reduce your taxable income, but they do reduce the taxes payable.
When I hire new tax preparers at our office, one of their first observations is: “I thought taxes were easy”. It may be easy if you are filing your own taxes year after year and not much changes. But as my new employees find out, almost every tax file is different.
You don’t know what you don’t know
What makes our tax system complicated is all the tax credits that taxpayers may be eligible to claim. If you don’t know about them, how do you know to claim them? Often it is new clients that I meet with and I review previous years’ tax returns and ask about credits that were not claimed and the answer is “I didn’t know I could claim that on my taxes”.
There are so many tax credits available and as professional tax preparers we need to consider each file in front of us: which tax credits might they be able to use? What information has not been provided to us? What do we need to ask for? Almost every file we work on, we end up contacting clients to ask for more information.
Because it’s hard to keep track of all the tax credits available, many clients turn to tax services like ours. We know of the various credits that exist and learn about all the new ones each year and check to see who qualifies for new credits.
Has your income changed? Do you now qualify for some credits? Has your family situation changed? Are there new credits we need to ask you about?
For us, filing your taxes is more than just reconciling your taxes payable and how much tax was deducted. It’s about digging for tax credits that will increase your refund or reduce your taxes payable.
Snowbirds never left
Are you old enough to remember when we all paid for Autopac at the end of February every year? Remember the line ups at the insurance offices the last two weeks of February? That is how we are experiencing the income tax preparation this year. We have received so many tax returns early to end of March, instead of spread out over six weeks into mid-April.
We believe the flow of tax returns this year is different because everyone is home and so many senior snow birds are able to get their tax information together much earlier than normal.
With no one away on vacation, it seems so many people have time to get their tax papers together and we have received it much earlier than normal.
It’s a struggle to get everyone’s taxes completed in a timely manner. I thank my staff for trying to get the taxes done as quickly as possible. There have been more delays than previous years on some tax files.
Thank you to our clients for their patience as we try to process so many tax returns in a short period of time.
Deadline still April 30
Remember to file your taxes before the normal April 30 deadline. The only exception is those who are self-employed and their spouses. Your deadline to file is still June 15.
We encourage you to file your taxes before the end of April especially if you have taxes owing. The penalty if you file after April 30 is 5% of the amount owing, plus 1% for every month you are late. So even if you cannot pay the amount owing, get it filed on time!
CRA has announced that if you received COVID benefits in 2020 and you have an amount owing, if you file by April 30, they will waive the interest until April 2022. So you have another year to pay it, interest free. This is only available if your taxable income is less than $75,000.
If you received CERB, CRB, EI, provincial COVID benefits; file on time! The interest relief is not a filing extension, just a payment extension.
If you did not receive any COVID benefits and you owe, you do not get interest relief.
So no reason to not file by April 30. Get it filed so you know how much it is. And you may be pleasantly surprised it may not be as bad as you think it is.
Anni Markmann is a Personal Income Tax Professional and Certified Financial Planner; living, working, and volunteering in our community. Contact us at 204.422.6631 or 36 Dawson Road in Ste Anne (near Co-op) or Info@SAtaxes.ca