The income tax deadline offers some “teachable moments” for your clients on the value of being proactive, says Tim Cestnick, president of Waterstreet Group Inc. in Toronto.
“Advisors might want to use this time of year as an opportunity to look at a client’s portfolio,” Cestnick says, “and see if there is anything that can be done to reduce the amount of taxes paid.
Perusing your clients’ tax returns before they file also can help you find ways to demonstrate your value.
“It’s a good time,” Cestnick says, “because clients will have it fresh in their minds how much tax they have paid.”
Cestnick offers some valuable tips on how you can help educate your clients on some best practices during tax time:
> Let the kids file, too
If a client has a child or grandchild who has earned any income in the past year, he or she should file a tax return, too.
Many clients do not capitalize on this opportunity to boost future wealth.
While the child is unlikely to pay taxes (or receive a refund), filing a tax return early in the teenage years will create space for an RRSP contribution.
Even if that child does not make a contribution this year, he or she will be able to carry forward this contribution room and make bigger contributions when they enter the labour force.
“I’ve seen some situations where kids have accumulated $6,000 or $7,000 of RRSP contribution room because they filed a tax return in their early years,” Cestnick says.
> Defer deductions
Most clients know that putting money into an RRSP entitles them to a deduction. They may not know that they do not have to claim that deduction in the year they make the contribution.
For example, if your client knows that his or her income will be much higher in the next couple of years, it is often advantageous to hold back on that deduction. Claiming later, against a higher income, can trigger a bigger tax credit.
> Claiming credits
If your clients are claiming charitable donations, advise against splitting the deduction between spouses. Claiming the donation against the higher-income earning spouse will trigger a larger tax saving.
Another good last-minute tip with tax credits, Cestnick says, is to claim all medical expenses incurred on the return of the lower-income spouse.
> Keep an eye open for work expenses
If your client is an employee of a corporation and has incurred expenses related to his or her work — make sure they claim them.
“People often forget that,” Cestnick says.
For example, if your client has built up automobile costs, he or she might be able to claim a tax deduction for “employment expenses” against employment income. If so, your client could claim a rebate of the HST paid on those same expenses.
Next: Taking the family approach to tax season.