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Monday, March 27, 2017

$2000 Tax Bill = Happiness?

Posted by Tim Stobbs on February 25, 2011

I’ve started working on our 2010 taxes for both my wife and I and so far the preliminary estimate shows that we owe about $2000 (I’m still waiting for some tax forms to confirm the final numbers).  Strangely enough I’m actually damn happy over that bit of news.  Pardon? Happy?!?  Did I hit my head or something?

Well actually the answer is a bit more simple that that.  At the start of each year I do a quick estimate of what my wife and I should make and then adjust my TD1 forms at work if required.  I generally aim for us to have a $0 tax refund when I do the estimate as such when we owe money that means we earned more together than we expected.  So the $2000 owing between the two of us means we earned roughly $5000 more than my original estimate (a combination of investment and business income).

So the tax bill in my view point is a good thing since I haven’t been giving the government an interest free loan for the last calendar year.  Instead I’ve been using that money for the last year to either invest or pay of some mortgage.  The trick I’ve noticed is you have to keep the amount owing reasonable and be prepared to pay if you suspect that you are doing better than you initially guessed.  The potential pitfall of this method is you don’t want to get your guess too far off from your income.  Why?  Well because if you are consistently owning more than $3000/year in taxes you will end up having to pay the government tax in installments (see here for information).

In the end I will now likely go back and adjust my TD1 forms for 2011 to have a little bit more tax taken off or another alternative would be to contribute more to an RRSP.  Either method would work depending on what your goals are and what your free cash flow is.  Also remember these are you last few days for an RRSP contribution so if you want to make a lump sum now for your 2010 taxes you still have time.

Comments

4 Responses to “$2000 Tax Bill = Happiness?”
  1. Dan Brown says:

    Interesting that you were $5,000 off. That seems pretty high! How were you so off in your estimate – was it a promotion throughout the year, or were investments just paying off that well?

  2. deegee says:

    In 2010, I received an unexpectedly large short-term cap gains distribution from one of my bond funds. This more than doubled my tax bill compared to 2009.

    I reinvested the proceeds from the distribution but still owe taxes on it. I estimate that it will take me 3 or 4 years for those added shares to generate enough dividend income to offset the taxes.

    The only thing I was actually disappointed about was that the distribution was a short-term one, not a long-term one, because the latter gets taxes at a much lower rate.

  3. I feel the same this year. While “annoying” to get the refund, I am also happy to get some money back. Too bad I didn’t have it earlier or to begin with :)

  4. Canadian Dream says:

    @Dan Brown,

    Actually it had mainly to do with my wife’s daycare earning about $2000 more than expected (a combination of grant money which offset some costs and sales) and I messed up with estimating our investing income. I forgot to add in some income to account for our two taxable accounts. Then after that there are several little things that occurred that were different than the estimate to make up the rest.

    Tim

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