Tax season is a time when stress levels can hit a peak.
Many people wait until the deadline to file their taxes, so the process can get harried and hectic. Filing taxes also includes the monotonous task of organizing items, like transportation or medical receipts, and sometimes that paperwork can get lost.
If you are not on top of your finances, there's the added stress of not knowing whether you’ll owe the government or not, and if so, how much you’ll have to pay.
The key to alleviating stress around tax season is to be proactive rather than reactive. A big part of this is working with your advisor to put a financial plan in place that offers a year-round perspective to your finances.
Tax season is one of those things that no one likes and if you're not prepared, it's easy to go into panic mode. Putting together a plan can help make tax season less of a grind on your nerves.
Here are seven ways to minimize stress over taxes:
1. Talk to your spouse/partner
A lot of times couples don’t like talking about money with each other but it’s important that, when you're getting ready for tax time, you talk to your spouse or partner so both of you are on the same page.
2. Have a monthly budget
It's important to have a handle on how much money you're spending and how much is coming in. That way, you’ll know how much to save every year, including how much you'll need to put toward taxes.
Your advisor can help you figure out approximately what tax bracket you'll be in and can provide you with a budget document to help you keep an eye on what's coming in and out of your accounts.
3. Have a file folder for all your receipts and paperwork
Get a file folder with multiple compartments to sort your receipts. It beats rustling through a large pile of loose receipts and documents every year. It only takes a few more minutes to file your receipts but will lead to fewer headaches when tax season comes.
If you’re not sure what you can claim, keep all your receipts and get advice on how to claim all your entitlements. It's a lot easier when you can just grab your folder and bring it to your accountant instead of wondering where you put something.
4. Better yet, go paperless
You might find it easier to say goodbye to file folders and filing cabinets. Keeping a digital archive of expenses can be far simpler, especially when you need to find a specific document or receipt.
5. Give yourself time
A lot of people leave the prep work and the filing of taxes until the last few days before the deadline. When you're in a rush, you're more likely to make mistakes, such as missing a deduction. There are penalties to filing late if you owe taxes, so you want to give yourself plenty of time before April 30 rolls around.
6. Do your taxes in the right environment
It helps you to concentrate if you do your taxes in an office environment, as opposed to the kitchen or dining room table, or in front of the TV. Do your tax work in an area where you won't have distractions.
7. Work with your advisor
Don't forget that your advisor can help you build a strategy, so you aren’t surprised with a big tax hit at the end of the year. Preparing for tax season early with your advisor, and setting out a plan, eliminates the uncertainty.
Another thing an advisor can help you with is using your tax refund wisely, so your money works harder for you. Some strategies include opening a tax-free savings account (TFSA), registered retirement savings plan (RRSP) or a cashable guaranteed investment certificate (GIC) – which allows you to earn interest over a period of time and has the flexibility of letting you cash out after that term.
Mutual funds and related financial planning services are offered through Credential Asset Management Inc. Financial planning services are only available from advisors who hold a financial planning accreditation through applicable regulatory authorities. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete and it should not be considered personal taxation advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax related matters.