Over the past couple of months I have been catching up with some of my former clients to see how they are doing asking how life has changed since being a newlywed, what things have happened since they got married that have surprised them, the most common question I was asked about was how do my taxes change now that I am married. I will tell you that I was not expecting that question, so I decided to seek out someone who know the answers and just happened to be a former client…
Please allow me to introduce you to someone who can help you navigate through the ever changing world of taxes Andrew “The Taxman” Brown of Bryce & Brown Accounting Services
With tax season just around the corner, I wanted to allow everyone time to prepare and make sure they have everything in order.
Here is a short question and answer interview that I did with The Taxman, pay close attention to the 10 tips he provides.
Q. Tell me about your expertise?
A. I have been preparing personal corporate tax returns for almost a decade. A lot of the knowledge I have was gained while working for the Canada Revenue Agency.
Q. What is the biggest misconception people have about their tax situation once they are married?
A. This depends on their situation prior to marriage. I find most of the misconceptions arise if a single parent is now married as they don’t realized government administered programs like the Child Tax Benefit (which depends on household income) will stop because a spouse’s return is not filed. Also, the almost punitive impact that your spouse’ incomes has on the amount you receive from these programs. Other misconceptions are the assumption that only one return has to filed (not true, one for each person must be filed even if there is no income) or one spouse is responsible for the other’s tax liability (each spouse is responsible for their own taxes but CRA can put a lien on joint property like the home, and bank accounts).
Q. Why is good to have a tax professional preparing your taxes for you?
A. It is always wise to have a tax professional prepare your tax return because the professional would and should be up to date on the latest changes that have been implemented and how best to utilize them to minimize your tax liability. Also to make sure the necessary forms are filled out to get any money from programs that you qualify for. An example would be last year a lot of people did not get the Ontario Trillium Benefit because they weren’t aware of it and didn’t fill out the proper forms require to get it.
Q. What are the common mistakes you see with newly-wed couples make with their taxes?
A. Actually one of the most common mistakes happens prior to marriage; if a couple has been living together they should be filing their returns as common law (this would apply to same sex couples as well) depending on the date of the status change it may cause you to owe because programs like HST and Child Tax Credit. A mistake, that might not be viewed as a mistake is couples who use different preparers for their tax returns, I believe one person should prepare both tax returns to ensure tax credits are maximized for example all donations are pooled and input on the higher income earner’s return and things like medical expenses should be pooled and input on the lower income earner’s return. Other issues that can arise are childcare expenses being claimed on the wrong return (generally should be lower income earner)
Q. What are 10 tips that newlyweds should follow in order to prepare for the upcoming tax season.
1. Your tax return is due April 30, unless you or your spouse reports self-employed earnings in the year, in which case it is June 15. Penalties are charged on late filed returns; an immediate penalty of 5% of the balance owing plus additional penalties for each month the return is outstanding. Penalties increase for repeat offenders.
2. Records must be retained for tax purposes for six years from date of filing. Some documents, such as those records pertaining to capital gains must be kept until six years after the sale is reported.
3. Contributions to an RRSP are a great way to defer income tax and save for your retirement. Try to contribute 10 – 15% of your annual taxable salary (adjust if you have a company plan). Before you make your contribution check your contribution limit.
4. Charitable donations should be combined with your spouse and claimed by the higher-income earner. Donations which exceed $200 entitle the contributor to a larger tax credit
5. You may combine and claim medical expenses for you, your spouse, and dependents you support (some limitations). The expenses may be for any 12 month period falling within the taxation year.
6. For the self-employed spouse your past as well as your present situation will determine if tax installments are required. If you are required to make tax installments, be sure to do so otherwise you will be paying non-deductible interest. If your income is lower throughout the year you can lower the amount of installments you pay
7. Transit amounts can be combined and claimed by one spouse; amounts for dependents can be claimed as well.
8. Each year the government responds to changes in the economy, public opinion, and the law by implementing tax changes. It is important to review these changes to determine if you can reduce your tax bill. It is equally important to review your personal situation to determine if tax credits are available that weren’t before
9. The Home Buyers’ Plan is an RRSP feature that allows first time home buyers to withdraw up to $25,000 from their RRSP tax-free, for the purpose of buying or building a home. The withdrawals may be a single amount or the taxpayer may make a series of withdrawals throughout the year as long as the total does not exceed the $25,000 maximum. Each spouse can withdraw up $25,000.
10. If your spouse or common-law partner has a low income (below roughly $11,000 for 2012), you may be eligible for a non-refundable tax credit that will reduce the amount of income tax you pay.
Everyone’s tax situation is different, so it is important to consult a professional to discuss how the various tax situations will impact you.
So with that if you are looking to have your taxes completed by a professional who knows how the laws have changed please make an appointment with Andrew “The Taxman” Brown.
Until next time Happy Planning