For most Manitobans, we try to avoid thinking about taxes any more than we need to. Gathering your T4s and receipts in the new year, passing them along to your accountant in a shoebox, and crossing your fingers for a refund is pretty much the norm.
Is there a better way to get a grip on your income tax situation? Can we break up the work throughout the year so it’s less onerous? Yes we can!
January/February
The window for contributing to RRSPs for a tax year is actually 60 days into the following calendar year. For 2021, you can still buy RRSPs that count for this year as late as March 1, 2022. If you’re actively contributing to RRSP accounts or thinking of making an additional deposit, use this time to make an assessment of your previous year’s income and potential tax bill. This information should inform you on how much, if any, additional RRSPs you should buy before the window closes!
January 1st also means that new Tax Free Savings Account room is available ($6,000 in 2022). If you’re topping up you TFSAs, make deposits early in the year to maximize the potential tax saving power.
The other key change every new year is for retirees. RRIF and LIF payments will likely shift thanks to the formulas that dictate their minimum and maximum amounts. Start the new year off right by forecasting your income needs and adjusting your income sources in light of your new payment schedule.
Spring Cleaning
Once May has rolled around, you’ve likely already filed your prior year’s tax return and discovered whether CRA has a refund for you or if you owe. You’ll almost certainly be receiving mail from them and should be filing it in the ‘important’ section of your filing cabinet.
One of the letters will by your Notice of Assessment, which is a great snapshot of your income tax situation. In this document, you’ll find key details like the amount you owed/received and your RRSP contribution room for the current tax year.
If you find yourself owing CRA money in consecutive years, they may also ask you to start remitting quarterly installments. Quarterly installments will be a prepayment for the current tax year, based on past history. If you have installments to make, mark the dates and amounts in your calendar to avoid late penalties and interest!
Year-End
In the latter months, you’ve likely got a good handle on your income level for the year. This information allows you to be strategic and take action on any transactions that fit your tax strategy. Capital loss harvesting, RRSP & RRIF meltdowns, or business owner compensation are all action items that need to be triggered in a specific tax year.
If you’ve got some wiggle room in your tax bracket or an ability to time out a tax bill effectively, do so at the end of the year when you have the most certainty that it’s the right action to take.
Whenever it comes to tax, ALWAYS be sure to run your strategies past your accountant for approval. Having an open line of communication and a proactive approach to your tax plans will not only make their lives easier, but will hopefully help you keep more money in your pocket each year!
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