Tax planning needs to be a year-round job, not simply twice a yr

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Presently of yr, there’s no scarcity of “year-end tax-planning ideas” that present up in articles, social media feeds and your electronic mail. It’s like clockwork: such articles magically seem from about Nov. 1 till Dec. 31 yearly. And comparable articles on “tax planning” will as soon as once more begin showing round mid-February of the next yr and finish after the April 30 private tax submitting deadline. This previous week, I acquired fairly a number of of these kinds of articles on my feeds, together with three on Nov. 1 alone.

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Whereas these articles are properly intentioned — and I actually don’t begrudge the authors for writing them — they frustrate me. Why? Effectively, it’s easy. Like most necessary issues in life, tax planning shouldn’t happen simply earlier than the deadlines. It must be way more proactive than that (as I stated in my e-book, Making Life Much less Taxing).

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Sure, checklists may be an necessary reminder to make sure you don’t overlook issues, however they shouldn’t be an alternative choice to good total planning. Sadly, many Canadians don’t strategy it that means. The Nov. 1 to Dec. 31 and Feb. 15 to April 30 tax-planning articles usually situation those who these are the one occasions of the yr to plan. For my part, that’s not right.

Let’s use a automobile as an analogy. A car is a big buy merchandise for many Canadians, and consists of ongoing prices resembling insurance coverage, gasoline and repairs. With a view to protect the worth and use of the car, correct and usually scheduled upkeep is an effective follow. The issue, after all, is that usually scheduled upkeep may be costly and on this day of age of rising prices, it usually will get put apart in favour of paying different payments. Tax planning is like that.

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For many, taxes are by far the most important annual expense that they pay. The typical Canadian household spends extra of its annual revenue on taxes — 45.3 per cent — than they do on fundamental requirements resembling meals, clothes and shelter mixed (35.6 per cent), in accordance with a current Fraser Institute examine.

Soak up that info for even a minute or much less and it turns into apparent that taxes deserve ongoing planning and vital consideration, not simply in the course of the predictable two occasions per yr when planning articles seem and one is bumping up towards submitting or different deadlines.

With that in thoughts, right here is my vastly simplified Anti-12 months-Finish Tax Planning Guidelines. It’s necessary to know — because the fourth level reemphasizes beneath — that this guidelines is to not be carried out solely twice per yr. It’s to be carried out no less than month-to-month all year long.

1. Determine how a lot in total taxes (together with revenue tax, GST/HST internet of credit, carbon tax internet of credit, property taxes and different taxes) you pay per yr. Sure, a few of this can require estimates, but it surely’s necessary to attempt.

2. As soon as computed, do some self-reflection. Has this opened your eyes considerably? What share of your total household revenue do tax funds symbolize? In the event you’re comfy with the consequence or it hasn’t shocked you, then perhaps there’s nothing additional so that you can do. In case your eyes at the moment are open and also you’re involved, then begin fascinated about the way you may be capable to scale back your tax publicity.

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3. Albert Einstein is usually quoted as having stated, “The toughest factor on the planet to know is the revenue tax.” I feel he was right. And when you do too after attempting to determine find out how to estimate and mitigate a few of your taxes, then take into account hiring a tax skilled that will help you determine it out. Most Canadians’ tax conditions are fairly easy. However when you’re getting into into extra tax complexity, then it might doubtless be definitely worth the funding to rent knowledgeable that will help you perceive your place.

4. Lastly, and that is necessary, don’t go away your planning till the 2 occasions a yr when all these articles come out.

And there you could have it, my Anti-12 months-Finish Tax Planning Guidelines. Tax planning is a year-round train. As famous above, the most important expenditure — by far — for the common Canadian household is tax. Give it the eye and year-round consideration it deserves. You’ll profit from an excellent understanding of how a lot you pay. Higher but, identical to your automobile buy, you possibly can then assess whether or not you’re getting good worth in your cash.

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Kim Moody, FCPA, FCA, TEP, is the founding father of Moodys Tax/Moodys Non-public Shopper, a former chair of the Canadian Tax Basis, former chair of the Society of Property Practitioners (Canada) and has held many different management positions within the Canadian tax group. He may be reached at kgcm@kimgcmoody.com and his LinkedIn profile is www.linkedin.com/in/kimmoody.

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