April is tax time and we are heading right down to the end of the race. For Americans time has almost ran out while Canadians still have a few more days to procrastinate. If you are rushing to finish up your taxes and file it then please skip this article for now, otherwise here are some common tax myths debunked.
Filing for Extension Gives Me More Time to Pay
Only if this was true. Unfortunately it is just a myth, you can file for an extension and not file your return by the deadline, however if you owe taxes it has to be paid by the due date or interest will accrue on it. The extension will avoid penalties for not filing your return on time, however the amount is still due.
When Refund is Received I am Clear
Your return is initially assessed without receipts or supporting documents. However, the taxman has the right to review your return, ask for documents and look for errors such as unreported income. You should keep your supporting documents in case they are asked for in the future, if you are unable to produce them you will be re-assessed.
Any Mistakes Will Be Corrected By CRA or IRS
Unfortunately the CRA and IRS will not do our homework for us, they will correct mathematical errors and sometimes apply certain credits (often Tuition credits that you have filed previously will be applied), but that is as far as they will go. They are not required to apply any credits or deductions that you may qualify for.
I Can’t Pay My Taxes, So No Point to File
The point of filing by April 30th (or April 15th in US) is that you will avoid the penalty fees. If you cannot pay the full amount you can make installment payments, if you have financial difficulties you maybe able to make a deal and reduce the amount owed. Just ensure you file your return on time.
I Made a Mistake, So I Should File a New One
Mistakes happen, if you file an incorrect return there is no need to file a new return you can just file an adjustment. In Canada this is done by filing a T1 Adjustment (T1-ADJ) it’s less cumbersome then filing a new return and avoids confusion.
Self-Employed Can Deduct Everything
Self-employed individuals need to be careful when it comes to deducting expenses. You cannot deduct ALL expenses if you are self-employed, you can only deduct expenses directly relating to your business. For example, if you use your car for business and pleasure, you can only deduct the percentage of business use. I highly recommend you hire a competent accountant to file your tax returns.
Any tax myths you would like to share?