What to Do After Tax Season to Prepare for Next Year
Hello All,
As we move past tax season, many of us can breathe a collective sigh of relief (at least with respect to taxes).
Some of us may have resolved to make sure that next tax season is less stressful, but thinking about that now seems a bit premature. After all, we have many months to prepare and we can just do that "soon", once we have taken care of our other responsibilities and perhaps after we've had some time to enjoy the summer.
Of course, time passes very quickly, and the force of procrastination is strong. So, our good intentions might tend to fall by the wayside as there is always something a little more pressing to do.
We often procrastinate to avoid being overwhelmed. There are however some simple processes you can put into place now that can help make next tax season far less overwhelming and stressful. The key is to develop habits around them.
1. Create a system for organizing receipts and expenses
It can be useful to set up a digital folder on your computer and a physical tax folder. Save your bills, receipts, tax documents etc. into these folders. You don't even have to sort them (although sorting is also very good). Just having them all in one place means that you don't have to scramble to find them during tax season. Instead they are all in one place.
Documents to include:
Business invoices and bills/receipts, contracts, agreements
Government notices
Medical expense receipts
Donations
Childcare receipts
Income slips, RRSP contributions etc.
Anything else that might seem tax related (you can always sort it afterwards)
2. Set a weekly or monthly financial check-in
Add a recurring calendar reminder to spend 30 minutes to an hour:
reviewing your transactions,
categorizing them into your spreadsheet or accounting software
Doing this regularly can significantly reduce the amount of work that you have to do at year end.
3. Automate your tax savings
Many of you owe taxes at the end of the year due to being self employed, small business or because you received dividends. In this case, transfer a percentage of your income, based on your estimated taxes into a separate high-interest savings account each month.
If you are registered for sales taxes, you should also transfer the amounts collected from your customers into the same account.
This makes your tax bill much more manageable as the amounts owing, when you are a small business or self employed, can seem very high if you aren't prepared.
In the video below, I give you 5 tips for preparing for your small business/self employed taxes.
4. Set up a system to track your car use
If you use your car for business, you must have an automobile log showing the kms. that you drive for business. Additionally, you need to know your total kms. driven during the year . If you haven't started yet, you should do so immediately. Guessing, at the end of the year, can be stressful and will likely result in incorrect deductions that can lead to trouble with CRA.
Related Post: What Types of Car Expenses Are (CRA) Deductible
5. Update Personal and Financial Information Regularly
Ensure your address, marital status, and direct deposit details are current with CRA and RQ.
Keep track of any life changes (marriage, new dependents, major purchases) that could affect your tax situation.
Taking a couple of hours to set up systems, that you customize in your own particular way, can make a massive difference in your stress levels when it comes time to doing your taxes.
Ronika
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