Ready for the Upcoming Tax Season?
Filing your income taxes is something we routinely do each year. We collect the necessary paperwork, forms, and receipts and either head to an accounting professional for filing or complete the process ourselves.
However, preparing for the upcoming 2020 tax season may look a little different, especially for those who have been working from home the past year.
Here are some tips to help you through the 2020 tax season and beyond:
Plan Ahead & Keep Organized
The best way to avoid delays this year is to file your return early. The lingering impacts of COVID-19 have the potential to slow down your ability to file a return, hold up your assessment or the ability to receive a refund, benefits, or payment.
Gather all your documentation (e.g., T4), receipts, notice of assessment from the prior year, and even a copy of your return from last year for reference. Most slips & documentation needed for the current year’s filing should be received by the end of February. Make tax time even easier by organizing other items that you collect throughout the year such as bills, bank statements, home office expenses, and additional supporting documentation.
Signing up for direct deposit through the Canada Revenue Agency (CRA) will allow you to receive your refund quicker than the traditional method of mailing a cheque. You can also avoid any delays in receiving future benefits or credit payments.
Any individual that received an emergency or recovery benefit from the CRA will receive a T4A slip. These amounts must be reported on your 2020 income tax and benefit return; they are considered taxable income.
Individuals that received either the Canada Emergency Response Benefit (CERB) or the Canada Emergency Student Benefit (CESB) must include 100 per cent of the payment in their tax return for 2020.
Individuals that received payment with the second round of benefit relief – the Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), and Canada Recovery Caregiving Benefit (CRCB) – had 10 per cent withheld for taxes by the government.
If you are required to repay any COVID-19 benefit and do so in 2021, the amount will be recognized on your T4A slip for 2021. This will allow you to claim a deduction on your 2021 income tax and benefit return.
Home Office Deductions
The unprecedented challenges of COVID-19 resulted in many Canadians working from home. The Canada Revenue Agency (CRA) provided details on home office expense deduction and introduced a temporary flat rate method to simplify the process for the 2020 tax year.
To claim home office deductions for the period you worked from home you must meet the following criteria as outlined by the CRA:
“you worked from home in 2020 due to the COVID-19 pandemic or your employer required you to work from home
you worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020
have a completed and signed Form T2200S or Form T2200 from your employer (only applicable if the detailed method is used to complete the claim)
the expenses are used directly in your work during the period”
The brief qualifying period is to ensure more employees can claim the deduction.
Flat Rate Method (temporary)
Introduced to simplify your claim for home office expenses, the temporary flat rate method is available for individuals who worked from home more than 50 per cent of the time. This must be for a period of at least four consecutive weeks in 2020 and due to the COVID-19 pandemic. You can claim $2.00 for each day you were working from home during that period, in addition to any other days you worked from home in 2020. Using this method, you can claim up to $400.00 (or the equivalent of 200 working days) per individual.
If you choose to use the temporary flat rate method, you cannot claim any other employment expenses (line 22900).
The detailed method can also be used if you worked from home because of COVID-19. To support this process the CRA developed tools to aid employers and employees. They have:
“created a simplified Form T2200S and Form T777S
created a calculator to help you claim the home office expense deduction that you are entitled to
will accept an electronic signature on the Form T2200S and Form T2200 to reduce the necessity for employees and employers to meet in person (applies to the 2020 tax year only)”
Making contributions to your savings or retirement plan is one method commonly used to reduce your taxable income. If the funds remain in the plan (e.g., RRSP) they remain tax exempt, however, once they are removed or when payments are received you are required to pay taxes on that amount.
In addition, individuals may be able to claim for a portion of family and education-related expenses. Researching the different deductions and credits that can be claimed can give you a better idea of what your taxes will look like when it is time to file.
Speak with a financial professional if you have questions about increasing your savings, planning for retirement, or how claiming deductions can impact you during tax season. The professionals at Lennox Financial Group are here for you every step of the way.
* This is for informational purposes only and should not be taken as financial advice. Please ensure you discuss your financial matters with a registered accountant.