Posted on Thursday 30 January 2020
Now that the end of winter is (almost) in sight, it’s time to start thinking about the biggest financial event of the year: tax season. Whether you are filing taxes as a young professional for the first time or you are a seasoned pro, there’s no doubt that filing your taxes can be stressful. There are tons of questions to consider, such as:
It isn’t always easy to find the answers—and as you learn more about filing your taxes, you might even come up with new questions entirely. That’s why we’ve put together the top 10 tax tips for young professionals in Canada to help you understand exactly what you are up against. If you’re ready to start thinking about filing your taxes, start with the tips below to make the process as stress-free and as efficient as possible!
First things first: before you get into the swing of tax season, have you thought about how you are going to file? Are you going to fill them out online on your own, or are you going to make an appointment with a tax professional?
This can be a hard decision to make, but it’s the first step in getting ready (and can be a great way to guide you toward your next steps). Here are some general rules to follow when it comes to deciding how you are going to file this year:
Filing online is a good idea if you have a simple, straightforward tax situation and you won’t be making any deductions. (Think traditional 9 to 5 jobs where you are getting a steady paycheque and your taxes are already itemized and taken out by your employer.) Even if you have more than one employer, you can still file online without any major issues or surprises—and as an added benefit, you get to do it on your own time without the hassle of making an appointment with a tax accountant.
If you are self-employed (and have kept great records throughout the year and have used an accounting software), you could also file online. It does take some practice and financial know-how to do this properly, though, so if it’s your first tax year as a self-employed individual, you might benefit from a little one-on-one guidance instead of tackling that on your own.
Filing in-person is best for individuals with more complicated tax situations. If you own a business or work solely through side gigs, you are probably planning on claiming more deductions than usual. That process can get confusing and you’ll want to make sure that you do it properly, which is where a local tax professional can really help.
And of course, filing in-person is also a good idea for anyone who just doesn’t want to deal with the hassle of doing taxes on their own. You can get the benefit of having someone else do all of the leg work—including finding all of the right credits and deductions—and, most importantly, you get the peace of mind to know that a trained professional has handled your finances.
One of the biggest mistakes that young professionals make around tax filing season is failing to get organized ahead of time. There are plenty of forms and paperwork that you’ll need to get in order before you file, and the last thing that you want is to be scrambling around at the last minute (that filing deadline can sneak up on you faster than you think). Keep an eye out on your mailbox and your email for these types of forms:
If you happen to own a business or work a side gig, you’ll want to make sure that all of your receipts are in order before you start the filing process. With any luck, you’ll have a collection of receipts already tucked away from the year, and maybe you’ve already started the organizing process (and if so, hats off to you for being so prepared)!
If you haven’t done this step yet, don’t worry. There is still plenty of time to get all of your receipts in order. The best way to do this is to:
Tax preparation software should allow you to either scan or upload images of your receipts, so you’ll be all set to start organizing each separate cost. Conversely, if you choose to work in-person with a tax professional, you’ll have made their process much easier by doing the organization work ahead of time.
No matter what route you choose, getting all of your receipts in one place is the best way to ensure that you are tracking your spending properly and setting yourself up for success when it comes to finding the right deductions. It’s a little tedious and probably will not be the most fun process—but no one expects taxes to be fun (well, unless you’re a tax accountant).
The past few years have seen an incredible rise in the “gig economy,” which applies to freelancers, independent contractors, and side hustles of all kinds. Maybe you have a little bit of contracting knowledge, so you work in your neighborhood as a handyman on the weekend. Or you could be finding one-off gigs online for people who need help refining their résumés, editing blog posts, or managing a content team of writers.
If you earned income from a side job that doesn’t fall under traditional work parameters—where your employer sends you a T4 and taxes your income—you’ll need to make sure that you are reporting that to the Canadian Revenue Agency. Being part of the gig economy means that you are self-employed, so you’ll need to fill out form T2125.
Many Canadians don’t realize that form T2125 is applicable even if you haven’t officially registered as a business—and that can come with some serious tax implications. The good news is that you can also add business expenses here, like any materials that needed to be purchased to complete a job or even the utilities or square footage in your home office.
(Note: If it’s your first time filing for side gig income, you might want to partner with a tax professional who can guide you through it, or at least make sure you file online with an intuitive software program.)
As a young professional, you may be eligible for easy-to-miss tax deductions. Big life events that happened in the past year that can increase the amount that you get back on your taxes, like:
If you bought a home, there are a couple of different credits that you might be eligible for. Do some research to see if your home purchase is eligible for the GST/HST New Housing Rebate or the Home Buyers’ Amount. It’s worth the extra time to look into it: for example, the Home Buyers’ Amount can give you a tax credit of $5,000.
Did you buy a new car in 2019? If it was an energy-efficient car, you could get a tax credit for that (but it’s going to have to be a new car, not a pre-owned one). And if you changed jobs and had to move, you may be able to claim any expenses related to moving, or money spent preparing for your job search, such as subscriptions to job search platforms, creating a résume, or traveling for an interview.
And don’t forget about your student loans, either. Whether you’ve recently graduated or if you got your degree ten years ago, your student loan payments can (finally!) work in your favor when it comes time to file your taxes. Once you start paying on your student loans, you’re also paying some hefty interest fees—but you can claim a tax credit on any interest that you paid over the past year.
This is another common credit that many young professionals tend to forget about when they file their taxes. Make sure that you get in touch with your loan servicer as soon as possible, so that you can add that dollar amount on your taxes. Don’t put it off until the last minute! After all, your student loan payments probably represent a large amount of your monthly bills—you might as well use them to your advantage during tax season.
Maybe 2019 was your year to start a family—and if so, it’s time to start deducting your dependents on your taxes. There are a number of different rules for claiming children on your taxes:
And if you have your child in regular daycare, that’s another tax credit that you can take advantage of. Of course, this means that you’ll need to keep track of your receipts and ensure that your child’s SIN is clearly listed on each receipt. If you haven’t been keeping track, you should try and reach out to the daycare—if they keep good records, you may be able to request a backlog of receipts from the previous year. (Yet another reason to start gathering receipts and documents as soon as possible!)
While you can’t make any adjustments to your 2019 income, this is a good practice to start putting into place to prepare for next year (and taxes are nothing if not preparing as early as possible). How can you reduce your taxable income? There are a few common ways to do this.
First, you can start making contributions into a retirement savings account, such as a Registered Retirement Savings Plan (RRSP), a Registered Retirement Income Fund (RIF). You’ll be able to make tax-free contributions and lighten your tax burden for next year by deferring those contributions from your taxable income in 2019.
Second, you can start making charitable contributions. Any funds that you send to charity are automatically labelled as tax-exempt, but keep in mind that you are going to need to keep a paper trail. Get a receipt and make sure that you can prove that you made a donation to charity.
It might seem odd to focus on creating a retirement fund as a young professional—but the sooner you can start saving for retirement, the better. Your money will grow over time, and with regular contributions (and a little bit of luck), you might even be able to retire a little earlier than you expected!
This is a super simple one to remember, but it’s also incredibly easy to forget. No matter how you choose to file, don’t forget to do it on time! Canadian taxpayers have a deadline to submit their taxes by April 30th, but if you (or your spouse) happens to be self-employed, you get a little extra leeway. In that case, you can wait until June 15th.
Find a way that will be most helpful for you to remember your deadline. Write it down on a notecard and tape it to your fridge, laptop screen or your bathroom mirror, so you’ll see it every day. Set a reminder for yourself on your calendar or an alarm on your phone to make sure that you don’t lose track of your tax prep.
If you don’t file on time, you’re going to get an additional fee tacked onto your tax bill—and then you’ll get charged interest on that fee, so forgetting to file by your deadline can have some serious consequences to your wallet.
If you’re worried about forgetting your filing deadline, you always have the option to file early. It’s a smart move for many young professionals for more than one reason! First, it ensures that you will definitely file on time, removing any anxiety about forgetting (and the opportunity for you to forget in the first place).
Second, it means that you are much more likely to take your time and ensure that you are finding all applicable tax credits and making the right deductions (if you choose to do so). Filing ahead of time takes the pressure of a looming deadline out of the way, so you won’t be rushing through the process and can take your time with it.
Third, it also means that you won’t have to worry about identity fraud. Tax ID theft is a growing problem in both the US and in Canada, meaning that someone could use your social insurance number to fraudulently file your taxes. Filing ahead of time lets you get ahead of the game, so to speak, and beat someone else to the punch.
If you file online, you have a ton of different options for where you go, how you do it, and most importantly—how much you pay. Tax filing software is a wonderful thing, but it can also get expensive. And if you’re on a tight budget this tax season, the last thing that you want to do is shell out more money just to file paperwork.
Don’t just go with the first filing option you find! Instead, take the time to do a little bit of research to see if you can get a cheaper option. In some cases, you might even be able to file your taxes for free.
The Canada Revenue Agency has a whole list of filing options to fit a range of budgets, which includes free options. And even well-known tax programs offer free versions, like TurboTax Online Free. Keep in mind that filing for free is typically only an option if you have a very simple, straightforward tax situation this year (in other words, you probably won’t be able to file for free if you own a business or if you are making itemized deductions).
No matter your situation, it’s always worth a shot to shop around and make sure that you are finding the best prices for your tax filing. And while there may be some cases where it’s worth it to spend a little more—maybe you want to have live online chat with a tax professional, or automatic searches for any potential deductions or credits—you should make sure that you are spending wisely when you file.
There’s no easy way around it: there’s a lot on the line when it comes to tax season, whether you are self-employed, have worked at the same job for the past 10 years, or if you have seven side hustles. The last thing that you want to do is end up paying more than what you need to, or spark an audit from the CRA. Use these top 10 tax tips for young professionals to keep your tax filing organized and efficient. Don’t let the thought of taxes overwhelm you or cause you to feel overly stressed out—with these tips in your back pocket, you can do this!