How to Prepare for Tax Season 2020


Posted on Monday 20 January 2020


How to Prepare for Tax Season 2020

After the celebration for the new year is done and your resolutions are in full swing (or at least the intention to stick to your resolutions is there), it’s time to start thinking about that dreaded five-letter word: taxes.

Of course, your reaction to that five-letter word all depends on your unique situation. Tax time is either a minor paperwork annoyance (with the hopes of getting a good payoff at the end) or a year-long headache, one that takes months of preparation (and maybe a little bit of anxiety mixed in for good measure, too).

No matter where you fall on that spectrum, learning how to prepare for tax season is key to making sure you are getting the most out of your return. After all, whether you make thousands of dollars or millions, the end result is still the same—you’re getting taxed on the money that you earned, and you want to make sure that it’s done right!

If you’re starting to feel the pressure from tax season, don’t worry: we’ve got you covered. In the sections below, we’ll cover the best tips on how to prepare for tax season 2020 to help you make it through these next couple of months (without tearing your hair out in the process).

Organize your income

Even if you don’t plan on filing your taxes right away, you can save yourself a huge headache by getting organized as soon as possible. You’re probably going to be getting a lot of documentation coming your way in January and February, which makes the first few months of 2020 into the best time for organizing. Keep an eye on the mailbox, and make sure to set aside all of the documentation that you will need on your income, including:

  • T4—What you were paid in 2019 by your employer
  • T5—Income from investments
  • T3—Income from a trust

If you have additional income from investment accounts or nationally funded programs, you’ll also want to check for these types of forms:

  • T4A—Income from your pension, retirement, annuity, or other income
  • T4A (OAS)—Income from Old Age Security
  • T4A (P)—Income from Canada Pension Plan
  • T4RIF—Income from a Registered Retirement Income fund
  • T4RSP—Income from an RSP fund

Get your receipts in order

This is really more applicable for anyone who owns their own business—and hopefully, you’ve been storing your receipts (with some sort of organization) throughout the year. If you haven’t started organizing them yet, don’t panic. You still have time to get prepared for tax season 2020, but you are definitely going to want to start right away!

All of your receipts should be in one place. They should be easily accessible and easy to sort through. You might even want to separate them out into different types of expenses, such as office equipment, utilities, meals, transportation, etc. If you use a tax preparation software, you’ll want to start uploading or scanning them so that you can get an automatic calculation of what can be deducted.

Your best bet is to get all of these organized as soon as possible so that you can track down any missing receipts way before you start filing. Tax season can be stressful enough—the last thing that you’ll want to do is force yourself to go hunting down receipts at the last minute.

Decide how you are going to file

There are two ways that you can file your taxes: you can do them on your own with an online program like TurboTax, or you can do them in-person with a tax professional. You should have a clear view of how you want to file as soon as possible. If you’re stuck and can’t decide, here are some tips to help point you in the right direction:

  • File online if your tax situation is simple and you don’t have a ton of deductions to take. Your employer will have already factored your taxes into your paycheques, so you aren’t likely to come across any huge surprises.

  • File in-person if you have a more complicated tax situation, like if you own a business and plan on taking a ton of deductions.

Filing in-person with a tax professional isn’t always the most affordable option, but it can be a smart move for certain tax situations. For example, if you own a business, a tax professional can make sure you are taking the right deductions so that you decrease your overall tax bill. And they can even help you find any applicable credits to really maximize your tax benefit, both for this years’ taxes and for next.

photo-of-person-holding-pen-1028726.jpg

Know the rules for claiming dependents

Claiming children and other dependents can be tricky when it comes to filing your tax return. This is especially true if you had a child in 2019—with so many other moving parts to manage and a new baby in the home, you probably aren’t thinking about how to claim your child on your taxes (and who could blame you!).

If you’re claiming a child as a dependent in tax season 2020, keep these tips in mind:

  • Single parents can claim $11,635 for one of their children

  • If you’re sharing joint custody, you can still claim one of your children on your taxes—but if you’re paying child support, you won’t be eligible for this tax benefit

  • The Canada Child Benefit lets you claim a child on your taxes, but it will be adjusted depending on your income (you can claim less as your income increases)

  • If you keep your receipts from daycare, you can claim it on your taxes—but the daycare will have to give you a receipt with your child’s SIN on it to qualify

  • Even if you aren’t married, living with the parent of your child means you are considered common-law right away for tax purposes

Claiming dependents can get tricky, so this might be a good opportunity to partner with a tax professional to ensure that you are claiming dependents properly. There’s no question that expenses related to having children can add up—but getting a little bit of financial relief during tax season can make that cost much more manageable.

Don’t forget your deadlines

We can’t stress this enough: don’t forget to file on time! Know your deadlines to file and make sure that you keep it top of mind. Your deadline to file as a Canadian taxpayer is April 30th. If you or your spouse is self-employed, your deadline is June 15th.

It sounds simple enough, but it is surprisingly easy to forget to file your taxes—and there are some significant consequences, especially if you owe money on your return. Filing late means you will get charged 5 percent interest on your outstanding balance as a penalty. And if you don’t pay it off right away, you get charged interest on your interest, which can add up quickly!

Get ahead of the game and make it impossible for you to forget your tax filing deadline by:

  • Marking it on your calendar (physical, digital, or both)
  • Setting an alarm on your phone as a reminder
  • Writing your deadline on a notecard and putting it on the fridge, bathroom mirror, or anywhere else where you know you will see it every day
  • Setting mini goals and deadlines for each step of the tax preparation process

If you’re worried about filing on time because you’re not sure you’ll have enough cash on hand to pay what you owe, don’t let that stop you. Even if you can’t pay your balance owed at the time that you file, it’s much cheaper for you in the long run to file on time. You can always sign up for a repayment plan if you need to and make monthly payments throughout 2020 to get that debt down.

And if you do find yourself with a tax bill that you can’t pay (and you don’t want to enter into a repayment agreement), the good news is that there are other options to consider. You can always get a short-term loan to cover your tax bill. After all, if you’re going to owe someone money, it’s often a lot more reassuring to do it with a local lender instead of the government!

Preparing for tax season 2020 can feel overwhelming, especially with so many moving parts to consider, like tax credits, deductions, dependents, and more. The key to making it through tax season is understanding all of your options and putting a plan in place. Take the time to get organized, and don’t be afraid to reach out for help—when it comes to tax season, it pays to get a tax professional on your side!