Tax Tips for Late Filers

We are currently still accepting new clients with slip-only returns for the April 30th deadline and small business owners for the June 15th deadline!

Have you been avoiding filing your taxes? You are not alone. It’s quite common to feel anxiety around filing taxes and attempt to avoid the issue all together. At Coastal Tax, we make having your taxes professionally filed as easy as possible! You don’t even have to leave the house!

Q: Are there penalties for filing late?

A: Yes, the CRA will charge you interest on any tax you owe as well as a late taxlatefilingfiling penalty if you have missed the deadline of April 30, 2018 or June 15, 2018 if you or your spouse is self-employed. Unfortunately, you cannot avoid this forever and eventually it will catch up with you. Waiting longer is only hurting your own wallet because the interest on tax owing is compounded daily.

If you have a balance owing for 2017, the CRA will charge compound daily interest starting May 1, 2018, on any unpaid amounts owing for 2017. In addition, the CRA will charge you interest on the late filing penalties starting the day after your return is due. The rate of interest is updated every three months and the current interest rate is 5%.

The late-filing penalty is 5% of your 2017 balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months. If this is your second offence, the rate increases to 10%.

My advice is: Even if you cannot pay your balance owing by April 30, you can at least avoid the late-filing penalty by filing your return on time.

Q: I have not been able to deal with my taxes because of a death in the family/serious illness/extreme financial hardship. Will I really have to pay all the penalties and interest if I owe?

A: Under certain circumstances, interest on unpaid taxes may be waived or cancelled. See Taxpayer relief provisions for more info. You will need to apply using form RC4288 Request for Taxpayer Relief. Coastal Tax can help you fill in this form correctly.

Q: Yikes, well that all sounds depressing! Is there any situation where I DON’T have to file taxes?

If you have no taxable income, i.e. you did not work or earn income of any kind during the year, then you are not required to file a tax return. If you have been working but you have never received a letter from the CRA demanding that you file a T1 return, you may be thinking… Lucky me! I am totally slipping under the radar here.avoid tax

What is probably happening is that you would actually be owed tax refunds and the CRA hasn’t come after you because they owe you money. If you are getting a refund, there will be no penalties or interest because the percentage is only charged on tax owing. If you are behind on a few years, Coastal Tax can help you get caught up and make sure you are getting everything back that you are owed!

Q: My spouse was working, but I didn’t have any income this year so do I have to file? 

There are actually some good benefits in reporting your nil income! If you are receiving Canada Child Tax Benefits (CCTB) then BOTH spouses must file tax returns on time every year in order to keep receiving these payments. Also, did you know that the Child Tax Benefit is non-taxable income? You will not receive a slip for this like you did in 2016.

Another benefit is the GST credit. You do not have to apply for this credit, you are automatically registered for it based on your 2017 family income when you file your taxes. This represents up to $544 that you could be receiving!

Knowledge is power, friends!

About the Author:

alicia1

Alicia Loewen is a certified Platinum QuickBooks Online ProAdvisor and the owner of Coastal Tax and Accounting Services on Vancouver Island, BC. Coastal Tax is a modern accounting firm and offers all services remotely using online and paperless software to make bookkeeping and tax preparation as painless as possible. Contact Alicia to set up a free consultation.

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19 Days Left to April 30th!

Happy Wednesday! We have limited capacity to take on new clients for the 2017 tax season so if you are needing help, send Alicia a message today at info@coastaltax.ca.

A reminder that if you or your spouse operates a sole proprietorship business, your deadline to file is June 15th, 2018.

P.S. Check out what our happy customers are saying in the 5-star reviews!

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Tax Tips for Sole Proprietor Businesses

It’s now the 2017 personal tax season, the time of year when individuals and sole proprietor business owners gather together their tax slips and business income and expenses. Remember that the personal income tax deadline is April 30th, 2018 and the sole proprietor business income tax deadline is June 15th, 2018. The sole proprietor business income tax deadline is applicable to you if you have self-employed business or farming income (or your spouse does, even if you do not, and you are filing together). It is important to note, however, that all income tax payable is due by April 30th, 2018, so in practice, many business owners prefer to file their taxes before April 30 so they can find out how much they owe. Another option is to prepay an amount to income tax to avoid interest on the balance owing and then you can wait until after April 30th to file and still get it in on time before June 15th.

People often ask me, “What can I write off from my business income?” Here is a quick and easy guide to the basic deductions allowed for a sole proprietor business.

Closeup of young bearded  manager working with laptop and drink

Business Expenses to Earn Business Income

The basic rule is that expenses you can write off for your business should have been expenses necessary to earn business income, meaning that the expense is related to your business operations. This can mean something different for every business. For example, a private hockey coach could write off ice skates, whereas a wedding planner could not. The general sole proprietor business expense categories are as follows:

  • Purchases – Cost of Goods Sold
  • Advertising
  • Meals & Entertainment – Deductible at 50% of total for business meetings
  • Insurance – Business or Liability
  • Interest & Bank Charges
  • Business Fees, Licences, Dues
  • Office Expenses
  • Supplies
  • Legal & Accounting Fees
  • Management & Admin Fees
  • Rent – For office or workshop space
  • Maintenance & Repairs – To equipment or to rented space
  • Salaries & Wages – Includes Employer portion of CPP/EI paid and company-paid benefits premiums
  • Subcontractors
  • Travel – Ferries, Flights, Hotel, Meals while travelling for a business purpose e.g. conference
  • Telephone & Utilities
  • Equipment Diesel, Fuel, Oil
  • Delivery & Freight

You need to provide your accountant with annual totals at tax time. If you are not using a computerized accounting software, such as QuickBooks Online, I have an easy to use template spreadsheet for small business expenses! I can provide this free of charge to Coastal Tax clients.

Business Use of a Personal Vehicle

You can write off expenses for your vehicle if you are using it for business travel. Some examples of business travel would be to pick up supplies, go to a meeting or conference, or deliver items to your customers. You are meant to track your business mileage in a mileage logbook. If you hate recording trips in a paper notebook you can use a mileage tracking app like MileIQ (free for less than 40 trips per month). If you are using a paper notebook, you must also record your odometer total at December 31 every year to get a total of Km driven in the year, including personal mileage. Some of the auto expenses will be prorated by business use percentage based on the mileage calculation.

The Auto expense categories are as follows:

  • Fuel
  • Insurance
  • Maintenance
  • Parking Fees
  • Lease Payments or Auto Loan Interest
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Image Source: https://www.mileiq.com/howitworks

Business Use of Home

You can write off a portion of your home expenses if you are using a home office or workshop/studio. You are meant to be using this space to be meeting with your customers for it to be deductible. The business use percentage is calculated by taking your home office square footage divided by the total square footage of your home.

The expense categories for Business Use of Home expenses are as follows:

  • Heat
  • Electricity – If your heat is electric put it in this category
  • Home Insurance
  • Maintenance – Including property maintenance
  • Mortgage Interest – Do not include the principal portion of your mortgage
  • Property Taxes
  • Rent – If you rent instead of own your home
  • Phone & Internet
  • Other Utilities – Water bills, garbage pickup
Capital Assets

Finally, any large equipment that you purchase for your business can be depreciated over time. On sole proprietor business tax returns we call this Capital Cost Allowance (CCA). Depreciation means the original cost of that item is expensed over time, instead of all in one year. Depreciable property can be items such as furniture, equipment, or vehicles to use in your business. Generally, any tools over $500 should be put on the CCA Schedule of your small business tax return. It is expected that these items will last for many years and so their total cost is spread out over time. Your accountant will need the purchase date, purchase price, and a description of the Capital Asset.

 

If you are interested in having your sole proprietor business taxes prepared by Coastal Tax, please send us a message through our Contact page. Check out the steps involved in our professional online and paperless tax preparation service! We make having your small business taxes filed as easy as possible without an in-person appointment required.

Now get out there and keep hustling!

About the Author:

alicia1

Alicia Loewen is a certified Platinum QuickBooks Online ProAdvisor and the owner of Coastal Tax and Accounting Services on Vancouver Island, BC. Coastal Tax is a modern accounting firm and offers all services remotely using online and paperless software to make bookkeeping and tax preparation as painless as possible. Contact Alicia to set up a free consultation.

 

 

Simple Tips for Financial Freedom – PART 2

Welcome to PART 2 of Simple Tips for Financial Freedom! If you missed PART 1, check it out here.

The key to having financial freedom is to get your money to a point of positive cash flow. If you are making a decent income but you still live paycheque to paycheque, it is because you have negative cash flow

Cash Flow is an accounting concept, but it can be illustrated simply, as follows:

Incoming Cash (Paycheques) – Outgoing Cash (Bills & Spending) = +/- Cash Flow

Many people think that they just need to make more money to get ahead. This often backfires, because as their income increases, people tend to spend more money and take out bigger loans. Here are my tips for pulling yourself out of that negative debt circle!

Don’t buy a home that will make you “house poor”. 

There is a great divide between what the bank will allow you to borrow and what you can reasonably afford. A standard affordability metric is that you should only be spending 35% of your income on housing costs (including utilities, home insurance, and property tax). Here is a fun/depressing mortgage affordability calculator! The term house poor refers to the situation where a person has over-extended their personal budget to buy a house. Someone who is house poor may appear to others to be doing well financially because they have the trappings of wealth, but they are probably struggling to pay other bills because they are up to their neck in mortgage payments. Just because the bank will lend you X dollars, does not mean that you should borrow X dollars. When you are shopping for a house, determine what your budget will be beforehand and then stick to it unequivocally. Don’t even view houses that are over your budget because you will be tempted to go over!

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My 1st house was the cheapest on the market! What, you mean, yellow and brown does not say “curb appeal”?

If you get a chunk of unexpected money, put it against your debt.

I know, I know. This one is awful! It’s painfully boring, but if you are serious about getting out of debt quickly, you need to put any “extra” lump sums against it. Maybe your employer gives you an annual bonus or you get a tax refund: pay that against your debt right away. Think of it this way, that money wasn’t part of your regular monthly budget so you aren’t going to miss it! Paying monthly amounts against debt is great, but its a very slow process, so you can really speed up the timeline with lump sum payments. If you absolutely cannot stomach paying the full amount, set aside 10% and allow yourself to buy a special “treat” with that. This one sucks in the short term, but it will be worth it over time.

Pay off the highest interest loans first – The Debt Avalanche Method

Once you’ve sorted out your monthly budget, determine the maximum amount that you can put towards your debts in a month. Next, order your debts by interest rate from highest to lowest (exclude a mortgage) and indicate what the minimum required payments are. If you don’t know the interest rates you are paying, now would be a good time to find out those details.
Here is a sample situation:

Personal Line of Credit 21% – Minimum payment $0
Credit Card 19.5% – Minimum payment $100
Auto Loan 7% – Minimum payment $300
Student Loan 5.5% – Minimum payment $150

Let’s say in this example, you had determined from your monthly budget that you could afford to pay $800/month against all debts. What you would do is pay the minimum payments on everything other than the highest interest rate debt. Attack that high interest loan with the largest payment you can! This is called the Debt Avalanche Method, which I prefer because you will pay the least amount of interest over time. Another option is the Debt Snowball Method (see infographic below) and this may be preferable if you know that you are a person who needs to see a quick return to be motivated to follow through with something.

Student Loan Infographic

Let’s see how that avalanche goes!

PHASE 1:
Personal Line of Credit 21% – Pay $250
Credit Card 19.5% – Pay Minimum payment $100
Auto Loan 7% – Pay Minimum payment $300
Student Loan 5.5% – Pay Minimum payment $150
TOTAL $800

Now this is where the magic happens! Once that Personal Line of Credit is paid off, you continue to pay $800/month but redistribute the maximum to the next highest interest rate loan.

PHASE 2:
Credit Card 19.5% – Pay $350
Auto Loan 7% – Pay Minimum payment $300
Student Loan 5.5% – Pay Minimum payment $150
TOTAL $800

PHASE 3:
Auto Loan 7% – Pay $650
Student Loan 5.5% – Pay Minimum payment $150
TOTAL $800

PHASE 4:
Student Loan 5.5% – Pay $800
TOTAL $800

BOOM! This strategy will pay off your debts the fastest and will result in paying the least amount of interest over time! You can set the payments as automatic bill payments in your online banking to help you stick to the schedule you’ve created.

Focus on the big picture. 

It can be very difficult to stick to a debt repayment plan if you are watching people around you go on vacations, buy new vehicles, and nice homes. It may feel like everyone else has more money than you, when in reality, they probably just have more debt than you.

People often say “money can’t buy happiness” but how many people’s actions follow that sentiment? 

I’ll tell you what does bring happiness: less stress and more time spent with the people you love. Be grateful for what you do have and focus on your goals and dreams for the future. Imagine what it would feel like to go on a vacation that you had saved cash for, and to not be fighting with your spouse about the credit card statement, and to drive around in a car that was fully paid for. It will be a struggle and you will have to make sacrifices, but it will be worth it.

Notice that I didn’t title this article Simple Tips for Financial Success. It’s called Simple Tips for Financial Freedom, because that’s how I feel.

FREE.

About the Author:

alicia1

Alicia Loewen is a certified Platinum QuickBooks Online ProAdvisor and the owner of Coastal Tax and Accounting Services on Vancouver Island, BC. Coastal Tax is a modern accounting firm and offers all services remotely using online and paperless software to make bookkeeping and tax preparation as painless as possible. Contact Alicia to set up a free consultation.