Paying your taxes by instalment is a great way to stay on top of your owed costs and avoid unpleasant surprises at tax time. Instalment payments can also be a little daunting, particularly for small businesses and independant contractors who are using the system for the first time. Along with general advice for how to prep for taxes ahead of time, these tips for streamlining your instalment payments can make the process less stressful for everyone involved.
Set Reminders to Pay on Time
The Canada Revenue Agency collects instalment payments four times each year: in March, June, September, and December. In 2017, the payments are due on the 15th of each aforementioned month. Check the CRA page on how to pay your instalments for up-to-date annual information. It’s a good idea to set reminders for yourself so you don’t miss a payment. If you are required to pay taxes by instalment, or may be required, you can request biannual instalment reminders through your CRA online account. The CRA sends reminders for March and June payments in February and for September and December payments in August. You can also set up an alarm or date reminder on your smart phone or in whatever program you use to keep track of calendar dates and appointments. Be sure to give yourself plenty of time to calculate your payment and transfer funds.
Set Aside Enough to Cover Payments
Instalment payments are often more convenient than lump-sum payments at tax time, because they let you split your overall debt into more manageable chunks. That said, you still need to be prepared to pay these smaller amounts promptly and regularly. Routinely estimating your up-to-date income and expenses can help you determine how much money you need to set aside every three months. Even if this is your first year filing taxes as a small business or independant contractor, pay attention to how much you make and spend each month. Averaging your numbers thus far and calculating your taxable income with goods and services tax or your province’s harmonized sales tax should give you a workable amount.
Use Detailed Accounting to Avoid Overpaying
Estimation should provide you with close enough figures to determine how much money you should set aside each quarter. However, when it comes time to make your instalment payments, you want to be as accurate as possible in your calculations so you don’t end up paying more tax than you need to. As an independant contractor, it’s important to save all of your receipts and statements throughout the year and to be aware of what amounts you can claim as expenses. It’s a good habit to save receipts even when you know they’re not eligible as an expense. If you are ever audited, being able to show what you didn’t claim adds to your credibility. While it’s a good practice to keep hard copies of all receipts, invoices, and expense reports, you can also use software or apps to manage your receipts throughout the fiscal year. Do your own calculation with hard copy, and compare it with calculations done in an app or program to ensure the highest level of accuracy. In the event that you overpay by mistake, you can call the CRA or send a letter to your local tax center to request a refund of the overpaid amount. Setting reminders, saving your money, and using good accounting practices should make your instalment payments a pain-free process.