Getting Tax Season Right: Plan to Start Early

Tax preparation season is about to begin and getting it right means a lot more than filing an accurate tax return. 

At tax time, your goal is to ensure the sustainability of family wealth – after taxes, inflation and fees.  There are several key goals:

• first, by minimizing the taxes paid on the 2014 and prior returns

• second, by integrating tax planning into investment, retirement and succession planning activities with all generations in the family

• third, be sure to file an audit-proof tax return to minimize stress and financial consequences when CRA follows-up.

At Knowledge Bureau, we teach professional advisors a Real Wealth Management™ approach to wealth planning. To plan tax efficiency and manage the investment, retirement, insurance, business and estate plans, one strategic plan requires all stakeholders to agree to building sustainable family wealth. This involves asking the right questions about family income and capital.

That’s important, because for advisors to be truly client-centric in their process, specific questioning about life, financial and economic triggers is required. Afterall, those events cause their clients to make decisions with their money.  Astute advisors will use interview techniques that result in a sharp investigative process that is propelled by comprehensive knowledge of the tax return and the tax law behind the lines.

Tax time is a good time to review other key financial documents – the personal net worth statement, for example, loans and liabilities and financial plans for future investments.  This is a time when all the financial affairs of the family are viewed together and the opportunity to discuss estate planning as well – when to transfer assets and to whom, and where the will is – is also logical. Professional advisors will complete, update and review these key financial documents together are practicing within a Real Wealth Management strategy.  They are a cut above.

This approach is not just for adults or the high net worth client, either. Tax planning begins for most people with their first pay as an employee:  source deductions for income tax, CPP and EI are requirements for those 18 and older; income tax and EI even for minors who reach certain earning thresholds. Even teenagers with income reported from “self employment” – babysitting, lawn care and snow shoveling.  Each of these sources build RRSP contribution room when a tax return is filed, a starting point in lifecycle investment planning approach to wealth management.

It’s About What You Keep.  Filing a tax return is the first financial transaction most Canadians will have in their financial lifecycle, and for many it’s the most important financial transaction of the year, especially since the average tax refund to May 1, 2015 was $1,695.  This year’s refunds may be much higher for families because of the Family Tax Cut provisions.  Doing the right thing with that tax refund – whether that is debt reduction or tax-efficient investing – is important in volatile economic times. 

It’s Your money.  Your Life.  The role of today’s tax specialist is a much broader one than ever before.  Arranging for early tax consultation appointments (this month and next) will help the specialist to a better job for your family.  It will also make your professional and investment dollar go farther.

Evelyn Jacks is President of Knowledge Bureau, a national educational institute focused on continuing professional development courses for advisors. See www.knowledgebureau.com for an invitation to the Knowledge Bureau Report, or register for professional online courses to shore up your knowledge on tax, retirement, business, succession and bookkeeping services.