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Common Mistakes to Avoid When Filing your Taxes
For many people, preparing and filing taxes can be a burdensome and experience. However, it doesn't have to be! With a little preparation and knowledge, you can reduce the stress of preparing and filing your taxes. To help you breeze through tax season (and save money!), we’ve compiled a list of the most common mistakes to avoid on your tax return.
Missing deadlines. Self-employment business taxes including annual GST returns for sole-proprietors are due by April 30, despite the tax filing deadline being June 15. Sole-proprietors should make sure they get their tax returns prepared if not filed by April 30 to avoid paying interests on any tax balances.
Missing foreign asset documents. If you own foreign assets, for example, bank accounts, investment accounts, securities, and real estate; you'll need to file the T1135 foreign income verification statement by April 30, even if you are self-employed, to avoid paying penalties of $25 per day you are late.
Not claiming income earned outside of Canada. Residents and deemed residents of Canada are required to report world income on their tax returns and pay tax on this which includes pensions and interest income received from outside of Canada. To avoid being assessed with interest by the CRA in the future for not having reported income outside of Canada, it's best to amend your tax returns through Canada's Voluntary Disclosure Program.
Not maintaining proper auto expense records. If sole-proprietors wish to expense their car and travel costs from their business income, a mileage log is required. A mileage log should show the odometer reading at both the beginning and end of the year as well as a list of all the trips that were used for business, including kilometres and trip description; and of course receipts for all the auto expenses. Visa and bank statements are not good enough. All this need to be done to avoid the CRA re-assessing your tax returns in the future and cancelling all auto expenses claimed.
Not knowing maximum allowable RRSP and TFSA contributions. Before making RRSP and TFSA contributions, you should always first look at your allowable RRSP contribution room from the notice of assessment or your individual CRA online account for RRSP and TFSA contribution room. Making a mistake of over contributing would be costly because interest is charged each month you had over contributed, including additional forms required to be filed by your accountant.
Including home renovations when claiming home office expenses. If you are a sole-proprietor and wish to claim business home office expenses, do not include home renovation costs, nor depreciation on building; otherwise, your principle residence would not be considered a principle residence when you sell your property, and possible capital gains may be incurred.
To help you avoid these pitfalls when filing your taxes, reach out to the experts at Acton Accounting & Bookkeeping. Never dread tax season again! Contact Acton Accounting & Bookkeeping today.
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