The Tax Man Cometh
Although there is only a week to go before the 2011 income tax filing deadline, there are still people who have yet to file their taxes for 2010 or even prior years. This may seem strange to those that regularly file. Most individuals understand their responsibility to file and reap the benefits of filing in the form of income tax refunds or credits such as Child Tax Benefits or Good and Services Tax.
Sill however, there are those gripped in fear of filing because they know they paid an insufficient amount of income tax throughout the year and will owe once they file. So, instead of dealing with the issue head on, they avoid filing in the hopes they will fly under the radar long enough to perhaps gather the money to eventually pay the arrears. Some fail to file because although they may be great in their craft/trade, they are terrible accountants or bookkeepers. Excuses range from “being too busy to file” to “cannot afford to pay someone to prepare the return”. The end result remains the same. Time passes and the return doesn’t get filed until, in many cases, the Canada Revenue Agency, catches up with them.
I have a cartoon in my office of two men stranded on a desert island looking very ragged and forlorn. One turns to the other and says “do you think they’ll find us”? The other says “don’t worry, I owe Canada Revenue”. No matter how many times I read it, the message still rings true. You can only hide for so long.
Although it’s never too late to clean it up, it’s best to stay on top of filing the returns from year to year to avoid unnecessary penalties, interest and judgments by the Canada Revenue Agency. It is imperative to recognize throughout the year if insufficient income tax is being deducted at source. Many people think their tax situation remains static from year to year even though their personal situation may change. Recognizing how changes impact taxes is key to avoiding a future tax problem. Dual sources of income, such as a full time job and an additional part time job, may bump you into another tax bracket causing an income tax debt at years end. Investments surrendered during the year might be considered taxable income and as often they have only a minimal amount of income tax withheld at source. Self-employed persons such as sub-trades are responsible for their own income tax installments which all too often get missed due to fluctuating income.
Avoidance can only continue for so long. Eventually the ostrich must lift his head out of the sand. Reduce stress and view filing taxes a matter of “spring” financial cleaning. Gather all tax documents and organize them into two piles: an income pile and a tax deduction pile. Schedule time in your busy life to fill out the necessary tax forms and either paper file or net file. If you are feeling overwhelmed with the task at hand, enlist the help of others, such as a tax preparer or accountant. The end result will be a de-cluttered financial closet. Ignorance may be bliss but knowing where you stand with the tax man is always better than not knowing.
Buy Now, Pay Later
Venture into any specialty food store, trendy coffee shop or hip downtown restaurant and you’ll find them. Gen-Y 30-something urbanites with what appears to be plenty of disposable income. They don’t seem to balk at a hefty price tag attached to a bottle of Borolo or a designer baby stroller. Grande Lattes for everyone! Inspect closer and the reason comes into focus. Creditors are funding their purchases.
Society has convinced us that we need not wait for what we want. We need everything now. The four letter word “save” is an old school way of thinking. Armageddon could happen any day now and you may regret not having your desires immediately fulfilled.
Creditors make funds readily available because they understand this. Credit allows the ability to get what we want now and affords us time to accumulate money to pay for those purchases. Creditors even award us for spending in the form of points and discounts. Apparently, we need credit to improve our credit score to obtain more credit. So what’s the problem?
While there are many successful and financially responsible 30-somethings that have clearly defined financial goals and know how to properly manage their income- to-debt ratio there are unfortunately, an equal amount of consumers who live well beyond their means. Many find themselves frustrated that they never seem to “get ahead” and yet they continue to consume and their debts keep mounting.
The idea of “ keeping up with the Joneses” has never gone out of style. It’s as popular now as it was in the 50’s and perhaps more so since credit provides us the opportunity to obtain what we desire now instead of saving for the future. If you thought by 30ish you would no longer be coerced by peer pressure, think again. Simple weddings have gone by the wayside thanks to reality bridal shows. Chances are if your friends lead a lifestyle filled with the latest tech toys, big screen TV’s, designer wardrobes and the latest vehicle you will be influenced to do same.
By the age of 30, setting and planning financial goals should be a priority. So much of life is planned and yet our financial roadmap often gets diverted as we fixate on our short term wants. Without a plan, we roam through our days without an agenda and are surprised when time passes as quickly as it does and what we hoped to achieved has not yet been accomplished.
At this age, spending should be much more disciplined and savings made automatic. Paying down debt should become a top priority especially on high interest credit cards. It’s ok to say” no”. It may be time to accept personal responsibility for your spending choices and lose the “I deserve” attitude. Start looking for ways to tighten your belt and stop feeling like you must spend every “found” cent.
Like planning for a trip, we need to plan the things we want in life. Pack the right items, discard what we can do without and start looking forward to the adventure. Enjoy life but remember 40 is just around the corner.
Pleasure of Saying “No”
At the grocery store on the weekend, I got stuck behind a frazzled mom and her demanding pre-schooler. In an attempt to defuse the embarrassment of his loud whiny pleas, she caved to his desires and tossed a candy bar on the conveyor belt. Kid one; mom nothing. I walked away pondering to myself, how difficult was it to just say “no”?
This same mentality could be used when considering our finances. Why is it so difficult for us to just say ‘no” to dinner out or shopping with friends? When colleagues ask us to join them in a post-work drink or a weekend golf game, we can’t seem to muster up those two simple letters, n-o.
All of us have limited finances. Some just have a higher limit. While an extra golf round this week may tip the scales for some, others may be weighing if the added price tag of a new Landrover is worth it for them. We must constantly remind ourselves of our own limited capacity and accept the reality of our finances no matter what income level.
Saying no is actually liberating. It allows us to be in control instead of being controlled. It is not a sign of weakness or failure but rather frees us of contrived notions that we can afford to live well beyond our means. Saying no allows us to live within our means and stops us from treating credit as income to support our desires.
Try it sometime and see. Next invitation you don’t think you should accept due to cost, say no. Or better yet say, “I can’t afford it”. There. Done. Elephants in the room. I would bet the first time you say it there will be hesitation and perhaps you will even feel embarrassed. But it will pass and soon you’ll be singing the praises of “no”. Your friends will catch on and may even join in on this trendy new word. Sure there may be a little less socializing, but saying “no” also means no unwanted accumulating debt.