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Tax planning must be a year-round activity, not simply twice a 12 months


Tax planning shouldn’t happen simply earlier than the deadlines. It must be way more proactive than that

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Right now of 12 months, there’s no scarcity of “year-end tax-planning ideas” that present up in articles, social media feeds and your e mail. It’s like clockwork: such articles magically seem from about Nov. 1 till Dec. 31 yearly. And related articles on “tax planning” will as soon as once more begin showing round mid-February of the next 12 months and finish after the April 30 private tax submitting deadline. This previous week, I acquired fairly just a few of most of these articles on my feeds, together with three on Nov. 1 alone.

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

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Sure, checklists might be an essential reminder to make sure you don’t overlook issues, however they shouldn’t be an alternative to good general planning. Sadly, many Canadians don’t strategy it that method. The Nov. 1 to Dec. 31 and Feb. 15 to April 30 tax-planning articles typically situation those who these are the one instances of the 12 months 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 similar to insurance coverage, gas and repairs. As a way to protect the worth and use of the car, correct and often scheduled upkeep is an effective apply. The issue, in fact, is that often scheduled upkeep might be costly and on this day of age of rising prices, it typically 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 biggest annual expense that they pay. The common Canadian household spends extra of its annual revenue on taxes — 45.3 per cent — than they do on primary requirements similar to meals, clothes and shelter mixed (35.6 per cent), in accordance with a latest Fraser Institute research.

Take up that info for even a minute or much less and it turns into apparent that taxes deserve ongoing planning and important consideration, not simply in the course of the predictable two instances per 12 months when planning articles seem and one is bumping up towards submitting or different deadlines.

With that in thoughts, right here is my enormously simplified Anti-Yr-Finish Tax Planning Guidelines. It’s essential to know — because the fourth level reemphasizes beneath — that this guidelines is to not be performed solely twice per 12 months. It’s to be performed at the least month-to-month all year long.

1. Determine how a lot in general taxes (together with revenue tax, GST/HST internet of credit, carbon tax internet of credit, property taxes and different taxes) you pay per 12 months. Sure, a few of this can require estimates, however it’s essential to strive.

2. As soon as computed, do some self-reflection. Has this opened your eyes considerably? What share of your general household revenue do tax funds characterize? For those who’re comfy with the end result or it hasn’t stunned you, then perhaps there’s nothing additional so that you can do. In case your eyes are actually open and also you’re involved, then begin eager about the way you would possibly be capable of cut back your tax publicity.

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3. Albert Einstein is commonly quoted as having mentioned, “The toughest factor on the planet to grasp is the revenue tax.” I feel he was right. And should you do too after attempting to determine the best way to estimate and mitigate a few of your taxes, then think about hiring a tax skilled that will help you determine it out. Most Canadians’ tax conditions are fairly simple. However should you’re getting into into extra tax complexity, then it could possible be definitely worth the funding to rent an expert that will help you perceive your place.

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4. Lastly, and that is essential, don’t depart your planning till the 2 instances a 12 months when all these articles come out.

And there you’ve got it, my Anti-Yr-Finish Tax Planning Guidelines. Tax planning is a year-round train. As famous above, the biggest expenditure — by far — for the common Canadian household is tax. Give it the eye and year-round consideration it deserves. You’ll profit from a superb understanding of how a lot you pay. Higher but, similar to your automobile buy, you’ll be able to 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 Personal Consumer, 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 might be reached at kgcm@kimgcmoody.com and his LinkedIn profile is www.linkedin.com/in/kimmoody.

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