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Taxes are Canadians’ greatest expense: Learn how to tax plan all yr lengthy

Kim Moody: Tax planning shouldn’t happen simply earlier than the deadlines; it must occur no less than month-to-month

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At the moment of yr, 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 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 obtained fairly a number of of these kind of articles on my feeds, together with three on Nov. 1 alone.

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

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

Let’s use a automobile as an analogy. A automobile is a big buy merchandise for many Canadians, and contains ongoing prices resembling insurance coverage, gasoline and repairs. So as to protect the worth and use of the automobile, correct and often scheduled upkeep is an efficient follow. The issue, in fact, is that often scheduled upkeep could 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 biggest annual expense that they pay. The common Canadian household spends extra of its annual earnings on taxes — 45.3 per cent — than they do on primary requirements resembling meals, clothes and shelter mixed (35.6 per cent), in response to a latest Fraser Institute research.

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 through the predictable two occasions per yr when planning articles seem and one is bumping up in opposition to submitting or different deadlines.

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

1. Work out how a lot in general taxes (together with earnings 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 may require estimates, nevertheless it’s vital to strive.

2. As soon as computed, do some self-reflection. Has this opened your eyes considerably? What share of your general household earnings do tax funds characterize? Should you’re comfy with the outcome or it hasn’t stunned you, then possibly 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 by the way you may have the ability 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 earnings tax.” I feel he was appropriate. And in the event you do too after making an attempt to determine methods to estimate and mitigate a few of your taxes, then contemplate hiring a tax skilled that can assist you determine it out. Most Canadians’ tax conditions are fairly easy. However in the event you’re coming into into extra tax complexity, then it could probably be definitely worth the funding to rent an expert that can assist you perceive your place.

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

And there you have got it, my Anti-12 months-Finish Tax Planning Guidelines. Tax planning is a year-round train. As famous above, the biggest expenditure — by far — for the typical 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 may then assess whether or not you’re getting good worth on your cash.

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Kim Moody, FCPA, FCA, TEP, is the founding father of Moodys Tax/Moodys Non-public 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 could be reached at kgcm@kimgcmoody.com and his LinkedIn profile is www.linkedin.com/in/kimmoody.

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