Year-end tax and RRSP estimates
Each tax season one of us here at Endeavor has a discussion in April with a client that goes as follows:
“You have got to be kidding! I owe that much tax! Is there anything I can do to get that down?”
Unfortunately, there is nothing the client can do in April to reduce the tax payable from the prior taxation year. The saying “Timing is Everything” goes along way in the tax world as well. If the client would have been proactive and contacted us prior to December 31st of the taxation year (if they are business owners, farmers, etc…) or before Feb 28th of the current year there would be some options to reduce their taxable income. Endeavor contacts a list of clients each year that we have identified as ones who would benefit from a tax estimate based on their history with us.
Business owners and farmers can have a tax estimate completed to determine the bottom line that will show up on their personal tax return. Knowing the bottom line, they then can complete expenditures that will reduce the net income before the end of the calendar year. Incorporated farms and business’ can do the same before their own individual year-end.
Individual tax payers who do not have a business or a farm have one option left open to them in the following year (assuming they have used all other options such as income splitting, making charitable donations and taking advantage of the various tax credits out there). The option is making an RRSP contribution or additional contributions during the first 60 days of the following year. We can prepare an estimate to aid them in their decision making to determine if an RRSP contribution will help reduce the tax due April 30th. In other words, a Cost vs. Benefit analysis.
No matter what type of tax payer you are, stay informed and understand all your options before April 30th! A short conversation with your accountant can help prevent the dreaded April surprise.