June 15th Deadline Approaches

June 15^th is the tax filing deadline for the self-employed and their spouses and common law partners; it is also the date the second quarterly instalment payment is due for some taxpayers. These are important milestones for compliance and wealth planning purposes and the following are tips for maximizing opportunities in each case.

Proprietors. Form T2125 is used to report business or professional income and expenses for unincorporated business owners, including self-employed commission sales persons.  Farmers use form T2042, fishers report income and expenses on Form T2121, and home daycare providers have special reporting requirements noted in CRA Guide P134.  Each individual business category requires a host of unique reporting options, so take special note of income and deductions in these industries, and their related audit-sensitive provisions. In particular this year, because auto log reporting requirements have changed, it's important to seek guidance on audit-proofing.

Tip: Because the interest clock starts ticking on May 2, when there is a balance due for 2010, don't wait until the June 15 tax filing due date to calculate the bottom line.

Trap: Late filing penalties kick in for those who file past midnight of June 15.

Investors, Pensioners and Self-Employed. June 15^th is also the due date for the second quarterly instalment payment. Taxpayers who owe more than $3000 ($1800 in Quebec) in the current tax year or either of the two previous years will be directed to make instalment payments. Anything that you can do this year to reduce your net tax owing will reduce the required instalment payment for next year.

Tip: Additional withholding tax from employment or pension income (ask for this on the TD1 or related forms) or from benefits such as CPP and OAS (use form ISP3520) is the easiest way to reduce instalment requirements, but not always the most tax efficient.  Remember, keeping more of the first dollar you earn and investing it sooner makes you richer in the long run. 

Trap: Don't ignore Form T1213óRequest for Reduction in Tax Withholding. Use it if you are reducing your income throughout the year with deductible expenditures or non-refundable tax credits that are not found on form TD1 or related forms.  These include RRSP contributions, childcare expenses, support payments, employment expenses, rental losses and deductible carrying charges.  Don't include the deduction for the split-pension amount, as your withholding tax on that income has to be shared with your spouse. Tax credits such as medical expenses and charitable donations may be included on the T1213 as well.  Documentation has to be attached and the T1213 forwarded to CRA for approval. 

Don't be shy about getting your tax refund all year long, with reduced tax withholding and/or decreased instalment payments. And, always file your tax return on time to avoid penalties and interest when you have a balance due.

Finally, by knowing tax credits and deductions that will apply to you in 2011, you'll pull ahead. Now is the time to have those tax efficiency conversations. Ask for qualified professional assistance to file to your best tax advantage!