Category Archives for "Personal Income Tax"

5 Early Steps to Get Ready for Tax Time

By Randall Orser | Happy New Year , Personal Finances , Personal Income Tax , Small Business

HAPPY NEW YEAR

While you are nursing that hangover or catching up on sleep might not be the best time to remind you that the last year is over and that you need to start thinking about filing your taxes! but here it is!

You are probably not too excited about filing your taxes but look at this as a great opportunity to review your finances and getting organized early will save you the pain and hassle of doing everything at the last minute.  

Here are some simple steps to help you to reduce your stress and get yourself on track for filing your taxes by the end of April or even a little earlier!

  1. Make an Account List:  Start by making a list of all your financial accounts. If you have a small business, you need to create both a personal and a business account list.  Include bank accounts, credit cards, investments, retirement, and every other financial account you have. Unused but still open accounts should be included on your list.  If these accounts are old and inactive now is a good time to close them. Make sure all of your accounts are accounted for in your bookkeeping software, so you don’t miss any transactions. If you forget to write off an eligible business expense, that is money you are giving money to the CRA that should be in your pocket!
  2. Get your Bookkeeping up to date:  If you have been ignoring your bookkeeping for a while, it’s time to get caught up! You’ll need copies of your annual income statement, which is the core document used to prepare your business taxes.  You might also need your balance sheet and depending on the registration of the business you run, you may also need to list assets and liabilities on your taxes, which comes from the balance sheet. Remember that errors in your bookkeeping can lead to errors on your taxes. You don’t want to pay too much and lose out on profits you should keep. Similarly, you don’t want to underreport and find yourself on thewrong side of an audit, fines, and penalties. Making sure your books are done, and done accurately, is key to tax season success.  If bookkeeping is not your thing, it might be a good idea to enlist the help of a professional bookkeeper who will keep your records in order for you so that everything is ready for tax time.
  3. Put Together a Tax Form Checklist:  Make a list of all the sources that you expect to get tax forms from.  These can be from bank accounts, investments, educational institutions and the government. You can put your checklist in an Excel spreadsheet or Google Sheets for easier access using your phone. Whichever method you use, make sure you have all the forms you need before you file your taxes, or you will have to file an update to your return if something is missed and this can be a big hassle.
  4. Create a Tax Form Folder (digital and physical):  When the forms arrive, it is easy to set them aside to open later then misplace them.  Train yourself to open everything right away and file it in a folder either physically or digitally.  You can use Dropbox to store digital copies and add in scanned paper copies so that you have everything together.
  5. Choose your Filing Method:  Decide whether you want to do your taxes yourself online, or you want to hire a bookkeeper or accountant to do them for you. Think about how knowledgeable or comfortable you are about doing your taxes.  If the answer if not very, you should use a professional to avoid making mistakes or missing deductions.

Taxes don't Have to be Terrible! 

You may dread tax season, but taxes don’t have to be a horrible part of your finances and your business. You do them every year, so find ways to make the process easier and faster.  Preparation well in advance can be the key to a successful filing and just think how satisfying it is when it is all done for another year! 

From an article by Eric Rosenberg

Have you Made Your New Year Financial Resolutions Yet?

By Randall Orser | Happy New Year , Investments , Personal Finances , Personal Income Tax

Looking forward to the new year, some of us like to make New Year’s Resolutions – some we keep, some we don’t, but how many of us make Financial New Year’s Resolutions?  It might be something that you want to think about for 2019.  

Resolve to do Better– we all start off the new year gung-ho about our New Year’s Resolutions then we get disheartened when we don’t see instant results, and we fall off the wagon.  The solution is to start small and be happy with small results rather than expecting a major overnight change in your money situation.  Resolve to manage your money better than you did last year. 

Identify Your Financial Goals– before you can make any progress towards your goals you need to know what they are – repay your car loan? buy a new home? retire early? To increase your chance of success you need to be specific about your goals then outline a plan of attack. Look at your financial performance last year and be honest - did you overspend or overborrow? Reconsider your financial mistakes and resolve to do better in 2019 and it is important to continue to review your progress periodically throughout the year.   

Get a Support System, your spouse should always be part of your team as you should be working together towards your financial goals.  Taking a personal finance class together will help you recognise where you are damaging your finances.  Share money saving ideas with family and friends.

Here are the Five Main Financial Goals that you should consider for the new year.

Start to Budget – Start tracking your spending because before you can commit to sticking to a budget you need to know exactly where your money is going, see where you are overspending and plan to reduce the cash leak in that area.  Use Personal Finance software to help you to easily track your finances.  

Get out of Debt – this is a key goal to taking control of your finances.  Prioritize your debts – organize your debts by their interest rate, pay them off in order of the highest ones first.  Fast track your debt payoff goals, instead of saying “I am going to pay off all my debts this year” which is a big goal, commit to contributing a little more to your monthly payments.  An extra $50 a month can make a big difference.  Think about ways of raising extra money to pay off debts maybe selling unwanted items or taking as second job.

Start Saving Money 

  • Reduce your grocery bill and stop eating out.
  • Find ways to save on utilities, cut ties with cable and start streaming.
  • Close any bank or credit accounts you don’t need, this could save you bank charges.  
  • Call your credit card company to try and negotiate a lower interest rate.
  • Boost your retirement savings and set a monthly savings goal.  
  • Automate as many monthly payments as possible. In this way you make payments without thinking about it, so it becomes a habit to expect these deductions from your bank account each month.  
  • Commit to no-spend days or weekends.  Make this a time when no money at all leaves your bank account, eat at home, find free entertainment and skip shopping.  
  • Get healthy without joining a gym – try doing on-line exercise videos for free and get outside for walks and hikes.  
  • Collect your change – try and use cash to pay for things and keep your change. Throw it into a jar. It is amazing how much you can accumulate over a year, and this money can go towards paying off a debt.

Learn about Money and Finances - Subscribe to a financial podcast (Randall does one every Friday at 11am).  Increase your financial knowledge by listening to the experts.  Alternatively commit to reading at least one personal finance book this year (there are lots to choose from at your local library for free!)   

Learn about investing or re-evaluate your investment portfolio – sit down with your financial advisor to see if your current plan is meeting your goals or if you need to make changes.  Make it a goal to invest a certain amount each month.

Some great ideas to get you started on the road to financial recovery, good luck in 2019.

How to Protect Your Records in Case of Emergency

By Randall Orser | Investments , Personal Finances , Personal Income Tax

When putting together an emergency plan should the “Big One” happen, food, water and shelter will usually be the priorities. However, protecting your most important family documents should also be part of that plan.  

In the aftermath of any emergency event some documents will be immediately important, for example insurance policies.  You can keep physical copies, store electronic copies on a USB, DVD, or remotely and there are free apps on your phone where you can record copies and email them to yourself or a relative.  

For birth certificates or licenses and other one-page documents you can take a picture on your phone, although these will not have legal standing, they may make it easier to replace them. 

The best way to protect your documents is at either at home in a grab and go waterproof and fireproof container (easy to buy), or off-site in a safety deposit box at your bank or at the remote home of a friend or relative.   

What Documents Need Protecting?

  • Government issued Vital Records - such as birth and marriage certificates, passports, citizenship papers, drivers licenses, and social security documents. You should also keep pet ID’s and records.
  • Home and property information, deeds, mortgage information, car titles and appraisal documents for jewelry and other valuables.
  • Insurance Policies – you will need policy numbers and contact information for your homeowners, renters, flood, earthquake, auto, life, health etc. policies. Make sure you read your policy well beforehand so that you know what your coverage is.  It is also a good idea to take photographs or do a room by room video to help you make an inventory your possessions.
  • Medical information – including prescriptions (drug name and dosage), health insurance numbers, physician name and contact information, powers of attorney and living wills.
  • Estate Planning documents, wills, trusts, funeral instructions, and lawyer information.
  • Financial records including tax returns, credit card and bank account numbers and financial contact information.

Having this information easily accessible will make getting your needs met after a disaster a lot easier when many providers will be overwhelmed.

For more information on making an emergency plan visit http://getprepared.ca/

How Can You Participate in the Government’s Home Buyer’s Plan?

By Randall Orser | Budget , Personal Finances , Personal Income Tax

The Home Buyers Plan is a government program that allows you to withdraw up to $25,000 in a calendar year  from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability.

How to Participate in the HBP:

  • You must be considered a first-time home buyer, this is a person who has not occupied a home that you, your spouse, or common law partner owned in a four-year period prior to withdrawing funds.  
  • You must have a written agreement to buy or build a qualifying home for a related person with a disability or to help a related person with a disability buy or build a qualifying home.
  • You or your related person with a disability must intend to occupy the qualifying home as your principle residence within one year of building or buying it and it must also be occupied as a principle residence.
  • You may be able to participate again if your repayable HBP is at zero at January 1stin the year of your next withdrawal

To Meet the Withdrawal Conditions:

  • You must be a resident of Canada at the time of the withdrawal
  • You have to receive all withdrawals in the same calendar year
  • You cannot withdraw more than $25,000
  • You can only withdraw from your own RRSP, but you can withdraw from more than one RRSP and your RRSP issuer will not withhold tax on withdraws of $25,000 or less
  • Usually you cannot withdraw from a locked-in RRSP or a Group RRSP
  • Your RRSP contributions must stay in the RRSP for at least 90 days before you can withdraw them under the HBP or they may not be deductible for any year
  • Neither you nor your spouse or common-law partner or the related person with a disability can own the qualifying home more than 30 days before the withdrawal is made.
  • You have to buy or build a qualifying home before October 1st of the year after the year of the withdrawal.
  • You have to fill out Form T1036, Home Buyers' Plan (HBP) Request to Withdraw Funds from an RRSP for each eligible withdrawal.

You have to make sure that all HBP conditions are met otherwise your withdrawal may not be considered eligible.  You must include part or all of the withdrawal as income on tax return for the year that you received the funds. 

For more information visit the Government of Canada webpage at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html

Buying or Selling a Home? Tax Information You Should Know

By Randall Orser | Personal Finances , Personal Income Tax

If you buy or sell your principal residence in Canada, since 2016 you have to report the sale on your income tax return.  This ensures that only those who are entitled to the principal residence exemption can claim it. 

A principal residence can be any type of housing unit including a house, cottage, condo, apartment, trailer, mobile home or houseboat. It qualifies as a principal residence if you own the property alone or with another person, you, your spouse or children lived in it for some point during the year and you designated the property as your principle residence.

You can only have one principal residence at a time. If you sell your principal residence and buy another in the same year you can use the “plus one” rule when calculating the principal residence exemption amount.  This allows you to claim for both properties but only one can be designated as your principal residence.

What is the Principal Residence Exemption?

When you sell a housing unit you may realize a capital gain which can be taxable.  However, under the Principal Residence Exemption rules this capital gain may be reduced or eliminated if the property was your principal residence for all the years that you owned it.  If it was not your principal residence at any time, then you may have to report capital gains.   

What Happens if you Don't Report the Sale

If you do not report the sale on your income tax, or don't make the designation then you will have to ask the CRA for an amendment to your return for the related tax year.  The CRA may accept a late designation but you may have to pay a penalty.

For more information on buying and selling your principal residence visit: https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-filing-season-media-kit/tfsmk27.html

Renting Out Your Mortgage Helper? – The Taxman Cometh

By Randall Orser | Business Income Taxes , Personal Income Tax , Small Business

Once you start renting out that mortgage helper you will need to include rental income on your tax return, using form T776 Statement of Real Estate Rentals.

You must keep accurate records of your rental income and expenses each year and retain them for six years.  These records help you figure out your net profit for the year. The tax you pay will depend on the net income from the rental; any losses will be deducted from your other income and if you have no other income will be carried forward to the next year. Whether a long-term or short-term rental, most rental receipts are considered income for tax purposes.

If your mortgage helper is for a parent, grandparent, or sibling, they are considered a ‘related person’. You may still have to report the income as rental income, however, if you’re renting below fair market value, you won’t be able to write-off any losses, and will have to report the income differently. 

Airbnb is a big thing now, and you need to realize if you’re doing this regularly, then you need to claim it as rental income. You get the same expenses as if it was a long-term rental, plus you can write off bedding, towels, and soap etc. that you use exclusively for this rental. If you supply meals, then the income may be considered business income and not rental income.

Your mortgage helper can definitely help pay for the mortgage and make your dream home more affordable. With experience, managing the rental side does get easier. Finding a good property manager, lawyer and tax preparer can help you manage the details.

For more information about renting visit https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4036/rental-income-2016.html

Thinking of Renting Out Your Mortgage Helper? – Here are Some Things You Should Know

By Randall Orser | Home Based Business , Investments , Personal Income Tax , Small Business


Before You Rent Out That Mortgage Helper, here are Some Tips

You’ve been able to buy that new home you want, and it came with an income suite, which can be financially fruitful. To be a good property manager, you should manage your rental as you would a business, which means you need to be an able planner and keep good records (especially for the taxman).
For a first-time landlord, renting out your house to an outsider can be quite the challenge. The following three items are things you should know before renting out that mortgage helper.


Keep Your Property Presentable
You must keep up the property in a tidy manner, no one wants to rent a messy place. You may also get a higher rent if you maintain the property, and keep it looking nice. Your renters will feel more confidence that you are a professional landlord when the residence is maintained. If something needs repairs, fix it, clean up the floors and walls and keep up the landscaping; this makes your rental much more attractive to potential tenants. 
Rental properties will need periodic repairs. If you’re not handy yourself, it is a good idea to find a local handyman you can rely on when needed. Your job as a landlord will be much easier if you can find reliable professionals you can call on when needed. Yes, it’s going to cost you money to maintain the property, however, it could cost you more in lost tenants. Plus, you get to write off minor repairs off the rental income.


Always Get it in Writing
That old adage is never truer than when being a landlord. You need to have a tenancy agreement, though there is no standard agreement you must use. You can look at one of those online law documents services and grab one from there, or chat with a lawyer that specializes in rentals. If you decide to just create your own, it is advisable to have a lawyer check it over for its legality. 
You should include the following details in any tenancy agreement:

  • Start and end date of the rental term
  • Security deposit amount
  • Monthly rental amount
  • The date of the month the rent is due
  • Acceptable methods of payment
  • How rent should be paid
  • If you are allowing direct payments into your bank account, you need to note on the form your bank details.
  • The number of keys you are giving the tenant
  • Who is responsible for utilities and maintenance
  • Any additional fees and disclosures

Depending on your particular circumstances, you may want to incorporate other terms you deem appropriate.

  • Pre-tenancy application form
  • Security deposit receipt for

It may be a good idea to contact a property law specialist to help create the tenancy agreement to your particular needs. The lawyer will be over legal disclosure requirements and explain how insurance can curb your liability.

Acquiring Great Tenants

At the beginning of a successful landlord-tenant relationship you need to get the right tenants. To find financially suitable applicants for your property seek the help of a credit check agency and ask for references from previous landlords.   After that, there are tools that can help you locate good tenants. Look for a local property investment association, as this can be a great resource for networking with other landlords. You’ll be able to get tips, and share yours, that you and they have learned over the years.

Avoid These Common Mistakes When Claiming Charitable Contributions

By Randall Orser | Budget , Personal Finances , Personal Income Tax

Donating to a charity can be a very feel good experience; as well it can help on your taxes by reducing how much you pay. However, most people make some pretty common mistakes when either donating or claiming the donations on their personal tax returns. We’ll do our best to enlighten you on what to avoid when claiming donations.

Each Spouse Claims Only Their Donations

This is the most common mistake most taxpayers make, each claiming only their donations. As a married, or common-law, couple you can combine your donations. This allows one spouse to take advantage of a higher deduction, or maybe they benefit far greater than the other spouse claiming the donations. Whose name is on the donation receipt is irrelevant. 

You get a higher deduction when claiming more than $200 in donations. On the first $200 of donations you get a 15% tax credit, and the amount over $200 you get a 29% tax credit.  

For Example, Susie has $50 in donations while her husband, Eric, has donations of $190. Separately, they are under the $200, and Susie would get a tax credit of $7.50, while Eric would get $28.50. If they were to combine these donations, one would be claiming $240 in donations. The credit would be $30 ($200 x 15%) plus $11.60 ($40 x 29%) for a total of $41.60. If Eric were to claim the donations he’d get an addition $13.10, and, if Susie were to claim them she’d get an additional $34.10. This may make more of a difference on either’s tax bill depending on their income.

No Receipt For The Donation

This is a common one for people who drop coin or bills into the boxes and cans strewn throughout their city or town. This may add up during the year, however, without a receipt or other proof, you probably won’t get away with the deduction. 

This also occurs when you get people coming to your door, and asking for a donation. If it’s a legitimate charity, you will get a receipt right there and then.

What are donation schemes and why should I avoid them?

People are sometimes approached to donate to charities or other qualified donees through tax shelter arrangements. Before you decide to donate in this way, you should be aware of the risks associated with participating in certain tax shelter donation arrangements including:

  • Gifting trust arrangements;
  • Leveraged cash donations; and
  • Buy-low, donate-high arrangements.

Promoters of such shelters must obtain a tax shelter number from the Canada Revenue Agency (CRA). The CRA uses the tax shelter number to identify the tax shelter and its investors, but offers no guarantee that taxpayers will receive the proposed tax benefits. 

The CRA reviews all tax shelters to ensure that the tax benefits being claimed meet the requirements of the Income Tax Act. The CRA has audited many of these gifting arrangements. Generally, the CRA reduces the amount of the tax credit to no more than the taxpayers' cash donation, and in many cases it is reduced to even less than that. In some cases the credit is reduced to zero. The CRA may also charge interest and penalties.

I have found that when these kinds of schemes go to court, CRA usually wins. I know someone who was caught up in the art scheme some time ago, where you buy a piece of art for cheap and then donate it to a charity at an inflated price (usually way above fair market value). 

What types of gifts qualify for charitable tax credits? 

Examples of donations that do usually qualify for charitable tax credits include:

  • Money;
  • Securities;
  • Ecologically sensitive land;
  • Certified cultural property;
  • Capital property;
  • Personal-use property (such as prints, etchings, drawings, paintings, sculptures, jewellery, rare folios, rare manuscripts, rare books, stamps, and coins); and
  • Inventory (such as art, antiques, rare books).

The following do not usually qualify for charitable tax credits: 

Contributions of services, such as time, skills, effort;

Certain admission fees to events or to programs (e.g., fees for daycare or nursery school facilities);

The purchase price of a lottery ticket or other chance to win a prize, even though the lottery proceeds benefit one or more charities; and

  • The payment of tuition fees (exceptions exist). 

These common mistakes for charitable donations can end up costing you quite a lot in taxes. Always make sure you get a receipt, look at the best possible scenario when it comes to deducting charitable donations, and don’t fall for the schemes that may save you initially but end up costing you way more later on.

 

What Can I Deduct as a Business Expense?

By Randall Orser | Business Income Taxes , Personal Income Tax

What Can I Deduct as a Business Expense? 

This is a question that we get asked often.  The answer is if this expense was paid in an effort to earn business income then yes, it is deductible.  If it was not used to earn business income, then the answer is no. 

The answer that the Canada Revenue Agency (CRA) has provided is quite simple: a deductible business expense is any reasonable current expense (cost) you paid or will have to pay to earn business income (revenue). Though reasonable is determined by CRA and not you. 

Personal Expenses which are commonly audited. 

Travel Expenses – only trips for business purposes such as a meeting or conference are deductible, and this only includes airfare and accommodations for the duration of the meeting.

Shareholder/Employee Medical Expenses – unless you have set up a formal health insurance plan in your company, health expenses paid for shareholders and employees are not deductible.

Non-business meals – Unless a meal is to try and earn business income, such as taking a client out for lunch or dinner it is not deductible. Taking yourself out for lunch is not deductible!

Expenses Deductible for Business Purposes

Here is a list of the types of expenses that are deductible for business purposes, they are all linked to the CRA information site for further information.

This is a long list and properly accounting for your business expenses can be difficult, but it is our job at Number Crunchers® to figure this out for you.

Why does Your Marital Status Matter for Taxes?

By Randall Orser | Personal Income Tax

I get this question a lot. People who are married usually just assume that they have to file together as they’re married, and that’s correct. However, those living together, but not married, must also state their marital status to Canada Revenue Agency (CRA). And, you must file as common-law if you are in a relationship with the person you’re sharing accommodation.

So why does marital status matter? Your marital status affects your child and family benefits. The Canada Revenue Agency (CRA) uses your family net income to calculate them, so they may change when your marital status changes.

The CRA will recalculate your benefits and credits based on:

  • your adjusted family net income
  • the number of children you have and their ages
  • the province or territory you live in

What is your marital status?

The definitions of the following terms will help you determine your marital status.

Spouse

A spouse is someone you are legally married to.

Common-law partner

You have a common-law partner if you are living in a conjugal relationship with someone who is not your spouse and at least one of the following applies:

  • you have been living together for at least 12 continuous months
  • this could include any period you were separated for less than 90 days because of a breakdown in the relationship
  • he or she is the parent of your child by birth or adoption
  • he or she has custody and control of your child (or had custody and control right before the child turned 19) andyour child is completely dependent on that person for support

Separated

You are separated when you start living separate and apart from your spouse or common-law partner because of a breakdown in the relationship. The breakdown in the relationship must last for at least 90 days and you do not reconcile in that time. A separation of less than 90 days is not considered a separation for child and family benefits. Once you have been separated for 90 days, the effective date of your separation is the first day you started living separate and apart.

If you continue to live together and share parental and financial responsibilities, the CRA will not consider you to be separated for administering the CCTB and GST/HST credit legislation.

If the separation is involuntary, you are still considered to have a cohabitating spouse or common-law partner. Involuntary separation could happen when one spouse or common-law partner is:

  • away to go to school
  • away for work or health reasons
  • incarcerated 

How does your marital status affect your benefits and credits?

Canada child tax benefit

If you get married or are now considered to be living common-law, and you or your new spouse or common-law partner has children who live with you, the CRA will put all of the children on the female parent’s account.

If you are married or living common-law with a person of the same sex, one of you will get the Canada child tax benefit (CCTB) for all of the children in the household.

To continue getting the CCTB, you mustfile an income tax and benefit return every year, even if you did not have income in the year. If you have a spouse or common-law partner, they also have to file a return each year.

Goods and services tax/harmonized sales tax credit

If you are married or are considered to be living common-law, only one of you can receive the goods and services tax/harmonized sales tax (GST/HST) credit. The CRA will pay the credit to the person whose return it assesses first. The amount will be the same, regardless of who in the couple receives it.

If you become separated, widowed, or divorced, the CRA will determine your eligibility and tell you if you are entitled to receive the GST/HST credit.

Working income tax benefit advance payments

If your marital status changes, you will need to submit a new working income tax benefit advance payments application. If you do not submit a new application, your advance payments will stop until the CRA receives a new application. The application deadline date is August 31 every year.

What you need to do if your marital status changes

If your marital status changes, you need to tell the CRA before the end of the month after the month your status changed. For example, if your marital status changes at any time in August, tell the CRA about the change by the end of September.

If you have become separated, tell us after you have been separated for more than 90 consecutive days.  You can tell the CRA about your new status and the date of the change by:

  • using Change my marital status in My Account calling 1-800-387-1193

If you receive payments based on an incorrect marital status, you may have to pay back any differences in amounts once your status is changed to the current status. The CRA will go back to the month after the month your marital status changed and change your benefits from then. Visit Balance owing - Benefits overpayment for more information.

A Little Story

Dick and Jane met and decided to live together and did so happily for 15 years. Jane had two children from another relationship whom she had full custody, and Dick had one child whom he didn’t have custody. Dick was a much higher income earner, and never qualified for any benefits; however, Jane was a low-income earner with two kids. Of course, they did their taxes separately, and never thought to file as common-law. 

Then one-day Dick gets audited. It wasn’t a particularly nice audit either. The auditor found out that Jane was living in the same house, were in a relationship, and that they had been filing as single. CRA can go back as far as they wish when adjusting returns, if they believe there’s fraud, even if the fraud wasn’t necessarily on purpose. 

Unfortunately, for Dick and Jane, the auditor went back to when they first started living together, less one year, and bounced their returns, and refiled them based on being common-law. Jane being low income had benefited greatly with having two kids and received many benefits. With Dick’s income added onto Jane’s she no longer qualified for those benefits and ended up having to pay back all of the benefits she’d received in those years. In the end, this added up to over $50,000 for the benefits payback and the penalties and interest on those benefits received. Needless to say, Jane didn’t have that kind of money, and they ended up getting a loan to pay it all back.

Your marital status is very important when filing your taxes, and you must be honest, and file with the appropriate status. As you can see it could end up costing you a small fortune later on.