Taxing time can be easier earlier - Winnipeg Free Press

OK, you have likely received most -- or even all -- of the tax slips needed to file your 2011 income tax return. Time to put them aside and ignore them till April 28, right?

Wrong.

Filing early can bring many rewards. If you're expecting a refund, the reward is obvious. If you file electronically now, you could have your refund in a week or so. Wait till the last minute, though, and the turnaround time could be as long as three weeks.

Most tax practitioners believe there is a higher chance of audit for last-minute returns. It makes sense -- if I worked at CRA, I would suspect more fudging and fibbing might go on with the 10 p.m. April 30 returns than the ones filed March 15.

People who file early appear to have taken the time to get everything accurate and seem pretty confident in their numbers and their disclosure.

There are penalties for filing late, if you owe money. The penalty is five per cent of your 2011 balance owing, plus one per cent of your balance for each full month your return is late, to a maximum of 12 months or 12 per cent.

If you are a repeat offender (meaning CRA charged you a late-filing penalty in any of the previous three years), the penalties double. Ouch.

Now, think about the comfort and the confident feeling you get from being in control of your finances. That may be worth more than money.

If you view taxes as a chore or a stressor, all the more reason to get this off your plate early and stop worrying.

Filing before the nice weather hits is also a great idea.

Here are some hints about preparing to prepare your tax return. Next week, we will provide serious tax-saving tips.

Don't miss slips!

Set up a system you can use year-to-year to track your expected slips. Add an entry every time you add an interest-bearing account, GIC, mutual fund or investment dealer to your roster. You will compare year-to-year to make sure nothing is omitted.

CRA does not like you to miss reporting income on T-slips. The first omission costs you interest; subsequent misses cost you penalties as well.

Remember all slips and trading summaries are copied to CRA. They know all and will eventually match them up.

T5 slips are issued by financial institutions and investment dealers to summarize the taxable amounts for a particular account, but usually only if more than $50 of income has been earned on that account. You must still report smaller amounts but calculate them yourself. (RRSPs, RRIFs, TFSAs and other registered accounts do not issue income slips.)

Investment dealers also issue detailed summaries of what makes up the T5 income, but these totals have already been reported on the T5. T5s have to be mailed to you by the end of February.

To report capital gains in an investment account, the institution must issue a Trading Summary, reporting all dispositions and redemptions. This information is entered on Schedule 3.

T3s (reporting investment income from trusts) can be mailed as late as March 31, and they are often mailed at the deadline by mutual funds that hold income trusts. The trusts have until March 31 to report, which drives tax preparers nuts. Same is true with limited partnerships, with more exotic slips like T5013s. Most taxpayers don't have to worry about those, luckily.

If you file yourself, plug everything you have received so far into the computer (or your paper return) this weekend and see where you stand. The size of your refund may help direct your plan of action.

If you have your return professionally prepared, then make up a written list of all of the slips you have received, which will act as your cover letter to your preparer. (We provide clients with a checklist to complete -- most say it's helpful.)

To avoid penalties, don't miss any slips. If one arrives after you file, be sure to amend your return and pay any resulting tax on or before April 30.

Above all, think of your tax-return preparation as a fun challenge that you can conquer and feel like a champion, like completing a marathon. (Or something like that.)

All the best!

David Christianson is a fee-for-service financial planner with Wellington West Total Wealth Management Inc., a portfolio manager (restricted).

dchristianson@wellwest.ca

Republished from the Winnipeg Free Press print edition March 9, 2012 B5

Source: http://www.winnipegfreepress.com/business/finance/taxing-time-can-be-easier-earlier-142031893.html

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