You look at the calendar and worry sweeps over you, it’s almost tax deadline day and you haven’t begun to prepare your taxes! While it’s certainly not ideal to be preparing your taxes at the last minute, there are some strategies that you can use to ensure you file the most accurate return possible, and limit your potential exposure to penalties and interest!
When are taxes returns due?
For most Canadian taxpayers, your tax filing is due on April 30th at midnight (or the next business day if April 30th falls on a weekend). For American taxpayers the deadline is April 17th. At this time, both the tax return and any payment owing must be submitted to avoid hefty late penalties and interest. If your return is sent by mail, as long as its postmarked on this date, you’ll avoid late penalties. Of course, if you e-file your return, you must ensure the filing is completed by midnight. Allow some time for potential internet connection issues, you wouldn’t want a costly computer related delay!
There is one important exception to this rule. For Canadian taxpayers that operated a business in the prior year, their tax deadline is extended to June 15th. While this might at first seem like great news, with an extra six weeks to file, there is still a potential catch. All taxes owing still must be paid on April 30th. If you are unsure of your balance owing on April 30th, but are eligible for the June 15th exemption, it’s prudent to make a payment that you feel will cover any potential taxes owing. Overpayments will be refunded with interest. If you don’t remit enough funds by April 30th to cover your eventual return, however, you will be charged late payment penalties accruing from April 30th.
What will it cost if my return is late?
Filing your return late can be an expensive endeavour. Interest begins accruing May 1st on the outstanding balance. This interest will be at the prescribed Canada Revenue Agency (CRA) rate, which is generally two percent above prime and this interest will compound monthly.
In addition, there is a late filing penalty of five percent of the balance owing charged immediately once the return becomes overdue. Each additional month you are late will cost you an additional one percent of your balance owing. For this reason, it is important that you file your tax return on time, even if you don’t have the money to pay your balance owing. While your balance will accrue interest, that interest will likely be a small amount compared to the late filing penalties.
Use tax preparation software
Taxes can be confusing and difficult to prepare at the best of times, let alone when under pressure. Using software, like TurboTax, to prepare your taxes will save time and reduce errors, especially when you are pressed for time. E-filing your return will also prevent any possible postmark errors at the post office, which could cause you to be charged with late filing penalties. [Financial Highway readers can get a 10% discount on TurboTax]
Take your taxes to an expert
More Tax Tips
If you are pressed for time and unable to meet the deadline on your own, it may be prudent to bring your taxes to an accountant or tax preparation firm. The fee charged by a tax expert or accountant may seem expensive, especially at the last minute. However, if you have a large balance owing, the fee may end up being less than a late filing penalty.
It is important not to guess or claim unjustified deductions just to file your return on time. This will likely trigger an audit and additional scrutiny for years to come. Take the time to correctly complete your return, either on your own or with an expert. If you must file to avoid a large penalty, be conservative. You can adjust you return later, but it could be a serious criminal offense to knowingly claim an unsupported deduction. Claiming only credits and deductions that you are sure of today and filing an adjustment later would be a more appropriate strategy.
These tips will ensure that you get through a panicked last minute tax preparation unscathed and paying the least amount in costly penalties. For next year, consider have your files in order and tax documents ready long before the deadline. Being prepared for tax time will ensure you don’t miss valuable credits and deductions, keeping hard earned dollars in your pockets.