If you’re like me and haven’t filed your taxes yet there’s probably a pretty good chance it’s because you owe money to good old CRA. When I was just out of school and had all those education credits to claim I always had my taxes filed within days of receiving all my slips so I could get that refund. These days I seem to owe every year, so I procrastinate for as long as possible.
Now, who hates having to pay up come tax time? Everyone right…my hand is raised. The thing is though, it’s actually a positive to have to cut a cheque to CRA.
How does that work? Well…if you owe money at the end of April it means that you didn’t pay enough tax during the year. If you think about it, this means that CRA has given you an interest-free loan for the year. Not a bad deal right? You’re not going to be able to get a loan from anywhere else that isn’t going to cost you anything. And if we look at it the other way, if CRA actually owes you money, it means that you have given them an interest-free loan for the year…kind of puts a damper on that tax return hey?
Now don’t get me wrong, I completely understand how crappy it is to cut a cheque to pay your taxes and also how exciting it is to get a big refund. Let’s compromise and agree that the best case scenario is to end up neutral…you don’t have to pay anything, and they don’t owe you anything. That way you’re in control of more of your hard-earned cash year round and can do with it what you please; saving it all away for a rainy day obviously 😉
How can you make keep track of where you stand tax wise? Keep an eye on those pay stubs, so you know exactly how much you are bringing in and make sure your employer is taking off the right amount of tax. That’s not always the case, I know my old employer didn’t take enough off, and I got caught owing a larger amount than I expected one year. You can always ask your employer to adjust your with-holding tax if need be. This can be especially important if you have some side-income that your employer doesn’t know about. Maybe you have a rental property, run an anonymous blog, or have high investment income in that year. The tax your employer withholds will be based on your salary with them and not any outside income. If you’re self-employed, then you need to be even more careful as you won’t be getting regular pay cheques with tax taken off. It’s a good idea to set aside some money throughout the year to prepare for what you owe in April.