Surprise Tax Bill
March 31st, 2022
Posted in: Tax
SURPRISE TAX BILL—are there three less appealing words in the English language? I think we’ve all had that experience: either we didn’t plan for it accurately, or we didn’t think about it at all, and come April, we get a nasty surprise when the bottom line of our income taxes is calculated.
Income taxes aren’t a surprise or a mystery—they can (and should) be planned for year round. Once you hit April and get your surprise, it’s too late to go back in time and make more income tax instalments or RRSP payments.
An Ounce of Prevention Is Worth a Pound of Cure
If this is your experience this year, the bad news is that it’s too late for this year’s taxes. The good news is that it’s an excellent time to plan for next year’s income taxes (and if you take a big enough hit on surprise taxes, you’ll probably be VERY interested in planning better in the future).
This article gives some very helpful tips on how to handle a surprise tax bill.
Full Speed Ahead!
Just like you don’t get in your car, turn it on, put the pedal to the metal and go full speed ahead with your eyes closed, you shouldn’t operate your business without keeping an eye on your finances throughout the year. The Canada Revenue Agency (CRA) makes tweaks to the Income Tax Act each year, but by-and-large, tax professionals have a very good idea what your income tax situation will look like. Working with an accounting professional is a very good idea to keep your business on track month to month, and also for avoiding the unpleasant SURPRISE TAX BILL!
Income Tax Instalments
This is a bit of a divisive question. On the one hand, an income tax return is the government giving your own money back to you that you have overpaid to them, but on the other hand, having income tax instalment payments put aside throughout the year (or increasing your income tax deductions if you’re a paid employee) can really lessen the sting of the surprise tax bill.
As a self-employed individual or a business, you may be required by the government to make income tax instalment payments. While these aren’t fun at the time you’re paying them, you’ll probably be glad you did come April.
This video is a great interview with a tax dispute lawyer.
Our accountants at Shaw & Associates can work with you and your business to keep your accounting on track throughout the year, keep you advised of your income tax situation, give you advice to reduce your income tax owing, and help avoid any unpleasant surprise tax bills in April. Hello peace of mind!
Contact Shaw & Associates Chartered Accountants for accounting help you can count on. One complimentary meeting with us will put you and your business on a more profitable and positive path.