Posted by Tim Stobbs on March 14, 2012
You read that title correctly: yes, I do like to owe at tax time, even if I actually don’t plan for it. You see I actually plan to get a close to zero refund as I can with my tax planning. So I fill out my TD1 forms, calculate my RRSP contributions and guess a little at the year ahead in order to get no tax refund or owe anything. Yet as you are likely aware life never works out that way.
So owing tax at the end of the year is a good sign to me as that means I earned more than I was guessing at the start of the year. While yes that does mean I end up having to consider paying a lump sum payment after I file my taxes I really don’t mind for the most part. After all I usually keep some money in saving to cover off this issue if I start to notice that I’m earning more than I would have guessed. Actually in late 2011 I made an extra lump sum contribution to my wife’s RRSP since I noticed I was doing much better on income than I thought I would.
I used to tax plan like most people and be very conservative on my estimates and would often get a refund at the end of the year. Then it occurred to me that I was giving the government an interest free loan of ‘my money‘ ever year that happened. So I decided to change my plan and aim for the zero refund.
I would caution that aiming for a zero refund in general takes more work. After all I often have to change my TD1 form at work in order to adjust for any changes that will occur in the year ahead. I also intentionally keep my taxes taken off my second job low in order to give me a bigger cash flow during the year which makes saving in our RRSPs easier. By the way, in case you were not aware of this fact the easiest way in the world to owe taxes is to have more than one job, since each job only assumes you only work for them you never get enough tax taken off at the second job. (In technical terms what happens is both work places assume you can use your basic tax deduction, when in fact you can only claim that once.) In order to compensate for this you either have to ask for extra tax be taken off on your TD1 form or contribute most of that second income to RRSPs. I personally go with the second option as saving is easier with a larger cash flow during the year.
How do you plan for you taxes? Do you like to owe money or get a small refund? Also can you tell I’m getting ready to do my taxes since this has been on my mind lately?