The Brass Tacks

Where's My Refund?

You filed your tax return and are expecting a refund. You have just one question and you want the answer now - Where's My Refund?

Whether you opted for direct deposit or asked IRS to mail you a check, you can track your refund through this secure website.

While you are at it, check out  Where's My Stimulus Payment?

Recent Buys

Yesterday I picked up 100 shares of Power Corporation of Canada (POW on TSX). Power Corp owns mostly insurance companies and a few financials like IGM, and it looks like a rock-solid company with a strong history of annual dividend increases.

I also acquired my first share of Berkshire Hathaway Class B (BRK.B). I'm pretty excited about that!

Passive Income Report - April 2008

	March	April
Dividends	$117.09	$200.59
Interest	$59.26	$25.68
Royalties	$0.00	$0.00
Online Music Sales	$270.48	$179.93
Total	$446.94	$406.20
Annualized	$3,179.85	$3,481.50
Change	1.9%	9.5%

I decided that—since some of my passive income is seasonal—the best way to track progress is to look at out how much was earned over prior 12 month periods. Online music sales, for example, typically drop off during certain months of the year and increase before Christmas, so despite the $90 drop between March and April online music sales are actually increasing, because in April 2007 I only made $57.

Although it is heartening to see an increase of 9.5% over the last period, I still have a long way to go to reach my goal of $2,000/month in passive income! But things will pick up soon as I move into more passive investments over the summer.

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.

Passive Income Report - March 2008

It seems like the thing to do on finance-oriented blogs is to report your passive income every month. I guess I'll do the same! Here we have my passive income report for March 2008. This is the first month, so there is nothing to report for "percentage change."

	March	Estimated Annual
Interest	$59.26	$716.23
Dividends	$117.09	$1,292.00
Royalties	$0.00	$3.66
Online Music Sales	$270.48	$1,945.92
Total	$446.94	$3,957.81
Percentage Change	N/A	N/A
Goal	$2,000/month	$24,000/year

Avoiding Double Social Security Coverage

Self-employed U.S. Citizens residing in Canada can find themselves paying a lot more tax than they should, due to the need to pay into both the Canada Pension Plan (CPP) and U.S. Social Security on their earnings. Fortunately, there is a way to avoid this problem with a little paper work.

The United States and Canada have agreed to eliminate dual coverage under each country's social security systems for the same income. If you are up for it, you can read all about it in the Office Consolidation of the Agreement Between the Government of Canada and the Government of the United States of America with Respect to Social Security.

If you don't want to wade through all that legalese, the important part is summarized neatly in IRS Publication 54 Tax Guide for U.S. Citizens and Resident Aliens Abroad, available in pdf or html format. The IRS seems to be having some trouble with its website this year and those links aren't always working, so I'll type out some of it here:

Exemption From Social Security and Medicare Taxes
The United States may reach agreements with foreign countries to eliminate dual coverage and dual contributions (taxes) to social security systems for the same work...As a general rule, self-employed persons who are subject to dual taxation will only be covered by the social security system of the country where they reside.

To exempt your earnings from U.S. Social Security Tax, you need to obtain a certificate of coverage from Canada Revenue Agency stating that your earnings are covered under CPP. The form CRA provides for this purpose is Form CPT56, Certificate of Coverage Under the Canada Pension Plan Pursuant to Article V of the Agreement on Social Security Between Canada and the United States. Download the form, fill it out, and send it to CRA at the following address:

Canada Revenue Agency
333 Laurier Ave. W.
Ottawa, ON  K1A 0L9
ATTN: Social Security Rulings

CRA doesn't provide the above address anywhere on their website (at least where I can see it), and it seems to change periodically. I obtained the address by calling them and asking–at present it seems to work but you might want to verify it with them.

The office that handles these requests might need you to provide copies of your Canadian tax returns, proving that you do indeed pay into CPP, especially if you are a new Canadian resident. You could proactively send copies in with your original CPT56, just to speed things along.

Once you have the certified CPT56 form, send it to the IRS attached to your U.S. income tax return. You apparently only need to do this once, but of course its good sense to keep copies of the form in your files, in case you need to provide it again. Congratulations: you are now entitled to enter "nil" on Lines 27 and 58 of your Form 1040!

The IRS provides a similar form for people in the reverse situation, with earnings that should be exempt from CPP and covered under U.S. self-employment (Social Security) tax. According to Publication 54, you can request a certificate of coverage from:

Social Security Administration
Office of International Programs
P.O. Box 17741
Baltimore, MD 21235-7741

Related Websites

Social Security Administration
Canada Pension Plan

Some Favorite Financial Sites

Dividend Blogs

The Dividend Guy Blog
"One guy's journey to passive income through dividend investing."

Dividends Matter
"Everyone else gets paid. Why shouldn't you?"

Living Off Dividends
"Make your money work hard, so you don't have to."

Dividends4Life
"Dedicated to the process of identifying superior dividend investments..."

Other Recommended Reading

Stingy Investor
Norm Rothery's blog has good information on picking undervalued Canadian stocks.

Million Dollar Journey
"The making of a millionaire–a Canadian personal finance blog."

LongLeaf Partners Funds
I like to read their quarterly and annual reports.

Warren Buffett Letters to Shareholders
Words from the greatest investor of all time.