You’ve probably been hearing it since childhood: “Everybody makes mistakes.” It’s an unavoidable fact of life. But when it comes to tax season, even a simple mistake on your return can prove costly. We’re talking hundreds, if not thousands of dollars. So, to help you avoid committing the tax equivalent of an unforced error, we spoke to UFile tax expert Gerry Vittoratos to find out a few of the most common mistakes people make on their returns – and, more importantly, how you can avoid them.
Mistake: Not Keeping Your Receipts
Unlike your T4 and other important income slips – which you typically receive in February or early March – receipts for charitable donations or medical expenses like dental visits are collected throughout the year. Problem is, most people aren’t thinking about their taxes in July, explains Vittoratos. And if you don’t remember to file those receipts away for later, you’re leaving precious money on the table.
Skip the shoebox and store your receipts electronically. Vittoratos recommends scanning and PDF-ing potential expenses and filing them in a designated folder on your computer. The typical rule of thumb is to keep your receipts for seven years in case of reassessment, and that’s a long time to hold onto a stack of crumbled paper. “Scan them, and you can archive them for as long as you need,” says Vittoratos.
Mistake: Missing Out On Carry Forward Amounts
If you’ve had capital losses in the past, or unused donation or tuition credits, you’re eligible to carry any remaining amounts forward, and claim them in a future year, explains Vittoratos. “People don’t realize that RRSPs can be carried forward as well.” And these amounts can really accumulate, especially when it comes to tuition. “We’re talking about huge amounts of dollars,” he says. And you can’t take advantage if you don’t know you have them.
Check last year’s Notice of Assessment or the “My Account” section of the CRA website to see if you have any amounts you can carry forward. (“Don’t expect the CRA to apply them for you,” cautions Vittoratos.) And while unused donations are limited to five years, capital losses and tuition amounts carry forward indefinitely. So if you missed out last year, there’s always this year. And the next. And every year after that.
Mistake: Not Paying Attention To New (Or Expiring) Credits
The announcement of the annual federal budget may not make your radar, but it’s a key date for tax purposes, according to Vittoratos. That’s when the government introduces important changes to the tax return, like new credits.
Treat Federal Budget Day like the NHL trade deadline. You don’t have to pour over pages of deficits and surpluses though, says Vittoratos: “Just read the headlines.” Set a Google Alert, if need be. “Just be aware of what the government is trying to do,” he recommends. “Because you could miss out on a lot of credits if you’re not aware that they’re either scrapping or introducing new credits.”
Mistake: Filing Late
Being fashionably late to a party? Acceptable. But it’s never good form to be late with your return. If you owe money, the CRA charges five-percent on the amount owing the moment you’re a day late, cautions Vittoratos. “Then they charge you a daily rate on the amount that is owing beyond April 30th. So you’re paying a penalty and you’re paying interest,” he explains. “That’s a bitter pill to swallow.” Even worse, that delinquent payment goes on your credit report, dinging your credit score at the same time.
“Just file on time,” says Vittoratos. “Even if you don’t have the money to pay them right away, submit the return anyway. Don’t pay that five-percent.” The same goes even if you’re expecting a refund, like the majority of late-filers. In that case, you’re essentially giving the government an interest-free loan, says Vittoratos, and there’s no sense in that. “The money is way better in your pocket than it is in theirs.”
Mistake: Not Checking It Twice
Rushing through your taxes might save you time in the short term, but it can cause major headaches down the line. Even if you’re using tax software, it’s still your responsibility to ensure everything you declared is correct, says Vittoratos. “Too many times, people just go in there, produce their return and submit it,” he explains. “People just don’t double-check, and it’s a big source of reassessments.”
Take your time and consult the literature – the government produces an annual guide that takes you through the return line-by-line and explains what’s allowed (and what isn’t). “Nobody wants to do it, but it’s not that hard to go through and double-check,” promises Vittoratos. Because you probably don’t want a reassessment either.
Mistake: Assuming Anything, and Everything, Can Be A Deduction
Contrary to popular opinion, that line on your return for “Other Deductions” is not an invitation to cram every miscellaneous expense you can dream up, says Vittoratos. The two biggest offenders? Assuming medical expenses count as a deduction (“It’s actually a non-refundable tax credit. You have to put it in the proper line.”). And business expenses.
“People try to stick anything as a business expense,” says Vittoratos. “It’s absolutely insane.” It’s also a great way to get yourself audited. “They think they can deduct whatever they want, and it’s just not the case,” he says. “I remember one client actually gave me an exhaustive list of medical expenses for their cat,” he laughs.
Use common sense. “Forget taxes for a second,” he says. If you were trying to run a profitable business, would you actually be incurring these expenses? Again, the CRA guide comes in handy here to answer any questions. And just to be clear, no, pets do not count as dependants. (Sorry, Fido.)
Mistake: Thinking It’s Too Late
The worst mistake of all, though? Not realizing you can still take advantage of that credit you missed, or those expenses you forgot to file for. Because even if you just caught something now, you’ve still got ten years to go back and amend a return. “That’s what the government allows you. Ten years from the current tax year you’re in,” explains Vittoratos. And it couldn’t be easier to file an adjustment, he says. “Before, you had to submit a specific form to the CRA and then submit the Schedules and the forms that you were amending.” The whole process could take upwards of six to eight weeks. Now? You simply fill out a table on the CRA website and receive the adjustment in a fraction of that time. “Within two, three weeks,” says Vittoratos.
Go the CRA website, sign up for “My Account,” and start getting that money back ASAP. “The government really gives you a big window to adjust your returns. It’s really not too late,” promises Vittoratos. And that’s money you can take to the bank.
For more great tax return tips and solutions, check out UFile’s Tax & U.