The Brass Tacks

The April 30 Filing Deadline

Are you confused about the April 30 Canadian tax deadline? Most of our clients are, so I thought I would make a blog post out of it!

If you are not self-employed your filing deadline is April 30. You can file your 2007 tax return late, but if you have a balance owing after April 30 interest and penalties will be added by Canada Revenue Agency.

If you can't get your tax return done on time, it's a good idea to estimate your balance owing and make a payment to CRA on or before April 30. See this page for instructions on how to go about paying CRA.

The amount of interest CRA charges varies every three months. Late penalties are typically 5% of the unpaid amount, plus 1% of the unpaid amount for each full month that it is late, to a maximum of 12 months (more information).

If you are self-employed filing after April 30 isn't so bad. If you owe money on your tax return CRA will charge interest on the overdue amount, but late penalties are not charged unless the amount is still unpaid on June 15.

If you are a GST Registrant, any GST remittances you owe CRA for last year are also due April 30. Interest and late penalties are applied to outstanding amounts after that date.

You have to make GST payments using Form GST34 (personalized) or GST62 (non personalized). These forms are available directly from CRA–they can't be downloaded from their website. You might have a form in your files that was sent to you by CRA. This page has instructions on paying GST amounts owing.

In certain situations CRA can assess an additional late filing penalty. For example, if you own foreign property that cost more than $100,000, and you don't file a return by April 30, CRA will penalize you $25/day up to a maximum of $2,500.

If you do make a payment of income tax or GST, it is important to let your tax preparer know how much you paid so he/she can include it as a credit on your return(s).

The Magic of the IRS Payment Plan

I quite enjoyed this article on Slate by Mark Gimein:

Why I Love the Taxman

Owe the government money? The IRS could be your best friend.

A New Definition of Wealth

I was thinking the other day about what makes a person wealthy. It came to me that true wealth has little do with how much money you have, but is more a function of certain characteristics that wealthy people share.

I prepare hundreds of income tax returns every year, from all sorts of different people and a wide variety of economic backgrounds. A tax return is a little snapshot of somebody's life–after you do enough of them it becomes pretty obvious who the wealthy people are and why.

Here are six characteristics that I've come to believe are essential to wealth. Without them you will never be wealthy, no matter how much money you have. With them you can't help but become wealthy. In fact: you already are!

1. Wealthy People Pay Their Taxes

Wealthy people file all their tax returns on time and pay any balances owing by the due dates. If they are required to make estimated tax payments throughout the year, they make those payments on time.

A lot of the money that wealthy people earn is passive income from investments or rental properties. Passive income is taxed more favorably by both the United States and Canada, making it easier for them to pay on time.

2. Wealthy People Spend Less Than They Earn

Wealthy people are not usually employees. If they work in an occupation of some kind, they are more likely to be self-employed than employed.

Employees almost always have a great deal of difficulty keeping their heads above water. The tax system is set up to gouge them as much as possible, and since their income depends on the number of hours worked (always a limited resource), they can never quite catch up. It's not impossible for employees to get wealthy, just really, really hard. Many people can't do it.

3. Wealthy People Don't Work Too Hard

Since they aren't struggling with cash flow problems from spending more than they earn, wealthy people have time to stop and smell the roses. They walk more, are less likely to have heart attacks from overwork, and have fewer medical expenses to worry about.

4. Wealthy People Put Their Savings to Work

The extra money that wealthy people have every month from spending less than they earn is invested in income producing assets such as dividend-paying stocks, high-yield interest bearing investments, rental properties, or other assets. They only invest in assets that produce positive cash flow, and they don't bail out of those assets if the market value goes temporarily south, unless a better investment comes along.

5. Wealthy People Make Charitable Donations

It really is true that you can create more wealth for yourself by giving. I can't explain how or why this happens–it just does!

6. Wealthy People Make Time for Loved Ones

Everybody knows how important this is, but how many people get caught up in the rat race and forget?

IRA Contribution Deadline Approaches

IRA contributions must be deposited by your tax filing due date–usually April 15–to be deductible on your 2007 United States income tax return. Contributions mailed and postmarked on or before April 15 are fine. You will have met the deadline, even if your financial institution receives the contribution after April 15.

From IRS Topic 451 - Individual Retirement Arrangements:

An individual retirement arrangement, or IRA, is a personal savings plan which allows you to set aside money for retirement, while offering you tax advantages. You may be able to deduct some or all of your contributions to your IRA. Amounts in your IRA, including earnings, generally are not taxed until distributed to you. IRA's cannot be owned jointly. However, any amounts remaining in your IRA upon your death can be paid to your beneficiary or beneficiaries.

To contribute to a traditional IRA, you must be under age 70 1/2 at the end of the tax year. You, and/or your spouse if you file a joint return, must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self–employment. Taxable alimony and separate maintenance payments received by an individual are treated as compensation for IRA purposes.

Compensation does not include earnings and profits from property, such as rental income, interest and dividend income or any amount received as pension or annuity income, or as deferred compensation.

Please refer to Publication 590 for information on the amounts you will be eligible to contribute to your IRA account.

Figure your deduction using the worksheets in the Form 1040 Instructions or Form 1040A Instructions or in Publication 590. You cannot claim an IRA deduction on Form 1040EZ; you must use either Form 1040A (PDF) or Form 1040 (PDF). Form 8606 (PDF) should be attached to your return.

The deadline for making a contribution to a traditional IRA for the year is the due date of your return, not including any extensions of time to file.

Amounts you withdraw from your IRA are fully or partially taxable in the year you withdraw them. If you made only deductible contributions, withdrawals are fully taxable. Use Form 8606 to figure the taxable portion of withdrawals.

Withdrawals made prior to age 59 1/2 may be subject to a 10% additional tax. You also may owe an excise tax if you do not begin to withdraw minimum distributions by April 1st of the year after you reach age 70 1/2. These additional taxes are figured and reported on Form 5329 (PDF). Refer to Form 5329 Instructions for exceptions to the additional taxes. For information on Roth IRA contributions or distributions, refer to Topic 309. For information on conversions from a traditional IRA to a Roth IRA, refer to Publication 590.