You wake up in the morning and open up your calendar to find, “Last day to file taxes.” Does that sound familiar to you?
As predictable as Megan Fox and Brian Austin Green divorcing, taxes are inevitable. And guess what? Tax season is right around the corner. Oh, the dreaded taxes, but hey, they are necessary and our civic duty. Let’s get ahead of the game, so you don’t face the distress of taxation procrastination (a widespread yet horrifying ailment that many of us have suffered).
We all want to be good citizens, but what does that mean exactly? Becoming a volunteer firefighter, feeding the homeless, or walking your neighbor’s dog out of the goodness of your heart? These are all wonderful acts of kindness but being “good” is highly personal and debatable. The government’s response to what it takes to be a good citizen is also quite predictable: pay your taxes (on time). That’s a boring answer, but those are the kind that makes it into school textbooks. How else will we be able to afford emergency services, community programs, and clean streets? The reason we have the services we do is because of taxes.
Why Do We Have to Do This?
Procrastinating on taxes might feel good at the time, it’s imperative to get them handled ASAP. We know it’s a pain, and we can’t even count the number of times a friend, family member, client, or random hipster on the street has grumbled about the amount of taxes taken out of their paycheck. It’s a serious bummer.
But let’s not forget where that money goes to. Taxation is one of the government’s primary sources of revenue. We need people to do stuff for us. Government employees are paid by our taxes—the accountants, the financial advisors, the street sweepers, the garbageman, the parks department, the whole nine yards. Let’s not forget all the other fun stuff. Funds are necessary to maintain the roads, keep our beloved libraries open, the public schools and parks we take our kids to, and government programs to help those in need. There’s a lot of money that goes into running a country, and there are lots of people to take care of.
This year’s been rough. We were all thrown into a whirlwind of the unexpected, and many of our priorities were shifted. People across the board may have become victims of procrastinating on taxes or filing on the last day. This past tax season, millions of individuals asked for more time to file their 2019 tax returns. And it’s completely understandable, given the circumstances. However, this time around, no one should deliver the goods later than the deadlines. This is why we recommend planning ahead to avoid the stress and pain of last-minute filing.
Seriously, future you will be patting you on the back.
5 Evils That Will Bite Tax Procrastinators in the Butt
Really giving it to the government and paying your taxes on the last day sounds like a great idea but being a rebel can backfire. There are real benefits to paying your taxes on time. But more importantly, there are major downsides to procrastinating on filing taxes, from the innocent typos to substantial fees. It’s essential to go down the list and check everything twice before submitting, and the best way to do so is by scheduling a reasonable time to start. This way, you’ll have room to organize and plan your documents, so you’re not gasping for air on the last day to file taxes.
1. Pay the Penalty
There are consequences for not getting things in on time. Or at all, which is far more severe and totally illegal. However, we know you’ll file no matter what because we really don’t want to bail you out of tax jail (the food is terrible, or so we’ve heard).
There’s also a difference in the types of fines. The failure-to-file penalty applies if you did not file by the tax filing deadline. A failure-to-pay penalty means you did not pay all the taxes you owe by the tax filing deadline. The failure to file penalty is greater than the failure-to-pay penalty, so if anything, be sure to file your tax returns on time, even if you cannot pay all the taxes you owe by the due date.
Let’s do a little math here. Don’t worry if math isn’t your thing—we’ll do the calculations for you. So, here’s the deal, if you file late, you receive a penalty of 5% on your tax balance, which is a bummer.
But it’s not over yet. This is where the failure-to-pay fine comes in. You get fined 1% of your balance owed per month for up to 12 months as determined by the CRA. What does this mean? Well, let’s say you owe $5,000, but you turn in your tax return late, you’ll owe an additional $250 (that’s the 5%). Now let’s say your 12 months late in paying your returns. That’s 1% for each month late, adding on $600 bucks in fees. So now you must pay off a penalty of $850, bringing you to a total of $5,850 instead of that initial $5,000, and lord knows we all need that extra cash.
2. Get Back to Basics
You might be wondering why this is even on here, but the basics are crucial to get right. You have it in your wardrobe, diet, and exercise routine. The basics are the building blocks to sophistication or complexity, and they are easy to mess up because they’re often overlooked.
Many small mistakes could be avoided. First things first, make sure your name is correct. Another common mistake is putting in the wrong bank account or social security number. Then select the correct filing status for your situation. For example, if you’re single and ready to mingle, you can file as single but can qualify for more favorable tax rates if you meet the requirements for being the head of household. Although one thing may be right, there might be something better you meet the requirements for, so sniff it out.
When time is ticking, it’s easy to make mistakes. This is also why you should consider using e-filing. It’s simple, easy, and fast. Not to mention, so much more secure and all online. The software will catch errors you’ve made and generally catch errors made along the way. It can be hard not understanding how to apply a tax table and making a math error.
3. Missing Money, Honey?
Don’t overlook your income. This is a common issue with those who procrastinate on filing taxes. Claim all income, regardless. Here’s a scenario. If someone did one freelance job as a film editor a while back and forgot about it, sounds like no biggie, huh? Well, the government won’t think so. If they realize you owe more, you’ll have to pay extra tax. Even working a side gig for a day means the income you received is still taxable, and you must claim it on your return. And don’t forget, COVID-19 benefits are taxable income; you will need to file a return based on how much you received. Minimize your chances of more penalties by being upfront about all of your income!
4. Credit Where Credit (And Deductions) Are Due
Not everyone is an accounting whiz, and we know that. That’s why we’re here to remind you to be aware of the credits and deductions available. Some commonly missed deductions include medical expenses, teachers’ classroom supplies, business use of your home (ahem, work from home office transformations). You can also get credit for childcare, higher education expenses, and earned income credit for those with incomes below a certain level. Some of these sound random, but they all make sense. After all, we’re talking money, and money makes cents (get it?). These things can get tricky, so really look into them and if needed, consult a professional.
5. Don’t Be Shy, They’re Just Extensions
Ask, and you shall receive (probably). If you feel you will be working on the last day to file taxes, it’s better to ask for an extension than filing a tax return full of mistakes or missing information. Even when you are granted an extension, that doesn’t mean you’re immune to not paying if you owe taxes. An extension is an extension on the return– not the payment. Otherwise, you will be subject to penalties and fees.
Helpful Tax Tips
This year don’t give in to taxation procrastination. It’s a no-brainer as to why it’s essential to plan ahead for the incoming tax season.
Here are a few friendly reminders:
- Gather all your information like your t4s, receipts, previous tax year’s notice of assessment, and a copy of last year’s return to refer to.
- File your returns online. This year, many taxpayers opted to upload documents to online portals as a result of the pandemic. It’s socially distanced and safe, plus electronic assessments are processed at faster rates.
- Know your deadlines. The Canada Revenue Agency (CRA) states that you can start filing taxes as soon as February 22, with a deadline of April 30, 2021.
- Sign up for a direct deposit since it’s way faster than getting a check in the mail. That way, you can throw your hands up in the air when you hear a cha-ching notification on your banking app.
Not the time to pay to play
We get it. Filing taxes can be overwhelming but paying early will give you peace of mind. Imagine, now you can binge-watch The Queen’s Gambit like every other person you know and finally join in on the heated chats. You can also purchase a box of a dozen donuts with the tax refunds you receive. A little treat to yourself, as you hum and dum while having an online sip and paint with your friends—and all this because you didn’t procrastinate filing your taxes
So, when tax season comes around, it’s time to pay, not play. And remember, you can ask for an extension. If the math isn’t quite right, use tax software. If the tax software doesn’t cut it, consult a professional, and at Alchemy Accounting, we’ve got your back. To prevent taxation procrastination, why not ask us? We are also here beyond tax season. We encourage you to reach out to us to get an idea of how you’re doing and to discover how to kick a$$ on your financial journey.