5 Essential Tax Tips for Millennials
By: Barry Choi
With the 2018 tax deadline coming on April 30th, it’s time to start preparing your paperwork. If you’re a Millennial, you would think things would be easy, but when you factor in student loans, side hustles, and any potential investments, things can get a bit complicated.
Don’t worry, I’ve been there too. Just like you, I don’t enjoy doing my taxes either. I’d much rather be doing ANYTHING else, but taxes are a part of life. The good thing is, if you take the time to learn about taxes, things become much less intimidating. Here are five essential tax tips that every Millennial needs to know.
You should file your taxes if you didn’t make any money
According to the CRA, you don’t need to file your taxes if you didn’t make any income the previous year, but it can actually benefit you if you file anyways. By filing, you’ll be able to claim a refund and see if you qualified for the working income tax benefit. You’ll also find out if you qualify for the goods and services tax/harmonized sales tax (GST/HST) credit or the Canada child benefit payments. These things may not matter to you, but at least you’ll have your records up to date with the CRA.
If you’ve got a side hustle, you need to declare that income!
Did you make any money from a side hustle? Maybe by being an Uber driver or selling some art on Etsy? If so, you need to report that income. Fortunately, if you’ve got a side hustle, you’ll be able to write off quite a bit of your business expenses by filling out a T2125 form, which is a statement of your business activities. Now if you’re tempted to not report your extra income because there’s no paper trail, just stop. Not reporting any income is called tax evasion and it’s something you don’t want to do.
It’s time to learn how to do your own taxes
Let’s be honest, filing your taxes is probably something that should be taught mandatory in high school. Instead, we’re forced to take geography and arts courses (not that there’s anything wrong with those subjects). Since we haven’t learned this life skill, we tend to rely on mom and dad, but it’s really time for us to learn how to file our own taxes. Free tax software may be tempting, but keep in mind that it’s really meant for people with the most basic returns. Paid versions are a better choice for people who have multiple streams of income, business expenses, and investments since it’ll walk you through your tax return and ensure you don’t miss out on any credits.
You shouldn’t blow your tax refund
Getting a tax refund is one of the best feelings in the world, am I right? Now before you blow that “free” money, consider this, the reason you got a tax refund is because you paid too much in taxes to begin with. You’re essentially getting back the money that you loaned the government for free. The best thing you can do with your tax refund is to reinvest it into your RRSP so you’ll get a bigger refund next year. Alternatively, you could pay off any high interest debt such as credit cards. Don’t get me wrong, it’s totally cool to spend some of your tax refund, but try limiting it to say 25% and saving the rest.
Keep a record of all your documents
Don’t throw away all your documents after you’ve filed your taxes and received your refund (or paid your taxes). The CRA recommends that you hang onto all documents for at least six years. These documents include anything that relate to your tax refund such as T4s and receipts from all your expenses. To keep things organized, you can store everything in a file folder or take pictures of all your receipts and keep them on the cloud. In the event that you get audited, you’ll have all the paperwork readily available.
Doing your taxes may be intimidating, but it doesn’t have to be. Stay organized, know your deductions, use software and everything will be alright. Oh, and remember, please try not to blow your entire tax refund.