Paying taxes can feel daunting, even if you're an older adult who's been doing it for years. However, it's an inevitable fact of life - a task everyone has to perform. Canadian laws around taxes can get complicated, and unless you're an accountant, you might struggle to keep up. Fortunately, there are ways you can make paying taxes less burdensome and more fruitful.
As an older adult, you can ask your adult children for assistance as they are likely to be more updated with the latest tax changes. If that's not an option, or if you still would like to learn by yourself, there are useful tips you can follow.
Register for direct deposit and file online
You can get refunds faster and reduce delays if you file your income tax and benefit return online, register for direct deposit, and update your address and personal information. If you want to easily view and manage your tax and benefit information, it's strongly advised that you sign up for My Account, which trivializes this. For more information on online filing, deadlines, and other guidelines, you should visit Canada Revenue Agency's (CRA) Get Ready page.
Sign up for email notifications
The last thing you want is to fall prey to fraud, scams, and identity theft. To prevent being a victim, sign up for email notifications from the CRA, so you can be notified when you have new mail in your My Account or when critical personal information is changed on CRA records.
The CRA also has a page dedicated to providing information to help Canadians avoid scams and fraud.
Reach out to a professional
Free assistance from your relatives or volunteers is good, but nothing beats the work of a professional. If you've got a complicated tax situation on your hands, your best bet is to work with a financial professional. Unlike an accountant, financial advisors can see more of your finances and help you not only with taxes but also with investments and retirement funding. A financial advisor can help you navigate your way through financial decisions that have tax implications.
Use a tax return software
For those with a simple tax situation, hiring a financial advisor may not be worth it. Fortunately, you can learn to use tax return software. Tax return software can simplify the filing of taxes with a significantly smaller price tag compared to a financial professional. Learning to use one will allow you to save a lot of money in the long run. There are different tax return software out there, each offering a free and paid version. When deciding which to use, keep an eye out for features such as ease of use, OS compatibility, and languages supported. You also want software that offers a generous suite of features for its free version. Most of all, the software should be NETFILE approved.
File your taxes on time
This one sounds like a no-brainer, but a lot of people keep making this mistake. Yes, filing taxes can be stressful, but pushing it aside and filing it late can result in more problems and more stress. Interest is charged on the penalties you accrue, and it can quickly pile up, surprising you in the worst time possible. Not only will it cost you more, but it will also require you to do more work.
As in everything, the best practice is to avoid procrastination. If you're scared of dealing with taxes thinking you can't afford to pay them, know that you can set up a payment plan on taxes you owe, but you can't do this if you haven't filed up to date. Also, remember that it's not a crime to owe taxes, but it's a crime not to file them as they're akin to tax evasion.
Managing your taxes is one thing; getting the most out of them is another. Aside from contributing to your country's funds, there are other benefits you can get out of your taxes, and below are some practices you can apply.
Report tips and gratuities
If you receive direct tips or gratuities in your line of work, you can report them to reap financial benefits. It can boost your total income, which can help you immensely down the road. With a higher total income, you can qualify for larger amounts of loans or mortgages. The contribution limit for your registered retirement savings plan will be higher. Lastly, if you decide to pay Canada Pension Plan or Quebec Pension Plan on tips and gratuities, you can raise the pension amount you can collect upon retirement.
Claim eligible medical expenses
Getting older is often tied to more health problems, hence more medical expenses. Given that specific criteria are fulfilled, you can get non-refundable tax credits for eligible medical expenses made throughout the year. Keep in mind that the expenses must be eligible in accordance with guidelines. The expenses need to have been made during the tax year and haven't been reimbursed previously. The amount should either be equal to three percent or more of your income or be larger than $2,397.
Split your pension income
If you make significantly more than your spouse, or vice-versa, pension income splitting can give you an advantage tax-wise. Those who are eligible can split up to 50 percent of their pension income with their spouse. Another advantageous situation is when one is working while the other is retired. While this practice can reap benefits, it can make paying taxes in retirement difficult to manage, so working with a financial advisor is recommended.