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| General Tax Tips |
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Setup tax folders
- Collect tax information slips, expense receipts and stubs from daily life, such as medical expenses, bus passes, children's fitness expenses and moving expenses, etc. See details in CHECHLIST.
- Don't miss any tax deductions and credits which are applicable for you.
- Organize these slips and receipts in the tax folders.
- Maximize RRSP contributions
- Consider making your RRSP contributions now, but save claiming the deduction for when you are in a higher tax bracket.
- Consider making spousal RRSP contributions. The primary benefit of a spousal RRSP is that funds withdrawn can generally be taxed in the hands of the (hopefully) lower-income spouse.
- Make your RRSP contribution early in the year to take advantage of the tax free accumulation of earnings.
- File income tax returns no matter how low your earned income is or how young you are to start accumulating contribution room.
- If you are short on cash, consider transferring certain existing asset to your RRSP in order to obtain an RRSP deduction.
- If your income will be nil or significantly less next year, buy an RRSP before March 1st., and cash it in one day later.
- The contribution will be deductible this year at your marginal tax rate and taxable next year at your new marginal tax rate.
- The RRSP limit for 2009 is the lesser of 18% of 2008 earned income or $21,000.
- Income or pension splitting
- Income splitting with your lower-income partner and children.
- If you and your spouse are both earning income, but one is in a much higher tax bracket, it's a smart move for the higher-income spouse to pay all or most of the family expenses while the lower-income spouse invests all or most of his or her savings.
- If you've received pension income in 2008, be sure to investigate whether splitting up to half of that income with your spouse or partner makes sense when you file your tax return this spring.
- Open a Tax-Free Savings Account (TFSA).
- The new tax-free savings account, launched Jan. 1, 2009, is the ideal place to put up to $5,000 of savings and earn tax-free income and/or gains for life.
- Any withdrawals are not taxed, do not negatively affect eligibility for government-tested benefits and can be re-contributed the following calendar year.
- Purchase RESPs for kids
- Don't forget to make at least $2,500 of contributions to each child's registered education savings plan (RESP) this year to take advantage of the $500 Canada Education Savings Grant.
- You may also be able to catch up on missed CESGs from prior years.
- You won't get a tax deduction, but the earnings will grow tax-free for up to 25 years or until the funds are withdrawn by your college-bound scholar.
- Add up all family medical expenses
- Combining medical expenses for the entire family and claiming them on one return may be more advantageous.
- Medical may be claimed for any 12 month period ending in the year. It may be more advantageous for example to go from June to May when totalling your medical expenses.
- Medical expenses include premiums paid at work for health and dental plans (but not insurance and disability).
- Blue Cross and other health plans are also medical expenses.
- Don't forget to include travel health insurance.
- Under certain circumstances you may also be able to claim travel expenses as part of your medical expenses.
- Don't forget about the refundable medical expense supplement on line 452.
- Pool your charitable donations
- If you and your spouse both make charitable donations, combine the receipts and claim them on one return.
- You only get a 15.5 per cent tax credit for your first $200 of donations, but ehen your total donations are more that $200, the credit is much higher, approximately 50% depending on your province of residence.
- Donations you made in 2006 can be claimed any year up to 2011. Claiming your donations every 2nd 3rd 4th or 5th year may be more advantageous to you.
- When planning your charitable giving, consider donating appreciated securities directly to your charity of choice and eliminating all tax on any accrued capital gains.
- Reap the benefits of the self-employed
- If you own your own business, consider paying your kids or a lower-income-earning spouse a salary or wages and deduct it against your income.
- Self employed individuals are entitled to claim a host of expenses as long as they are reasonable and incurred to earn income. The most common are goods purchased for resale, office supplies, consulting fees, salaries and benefits, travel, insurance, equipment rental, bank charges and repairs and maintenance.
- Often missed are the entertainment expense incurred to earn income such as meals, coffee, drinks in the bar and gifts.
- If you home is your main place of employment you may also be entitled to claim a portion of your occupancy expenses such as rent, mortgage interest, property taxes, insurance, utilities, telephone and minor repairs and maintenance. The portion you claim varies based upon the amount of space and time the space is used for business.
- If you use your car, you my be entitled to claim a reasonable portion of gas, repairs, lease, insurance, driver's license, interest on car loans, motor league, parking, washes and 30% per year on the cost of the vehicle used.
- If you partner or other family members participate in the business a reasonable salary paid may be deducted.
- This may be a great tax savings strategy depending upon your circumstances. You might also consider making another family member the owner or partner in the business in order to split income.
- It's also important to know when its time to incorporate and what family members to include as shareholders. There are many tax saving strategies associated with incorporating a family business and it's important to get proper professional advice.
- Sometimes it's possible to combine a family vacation with a business trip and expense a portion of the expenses.
- Make maximum use of your investment losses
- If you have capital losses that cannot be used in the current year, you can carry back the losses to any of the 3 preceding taxation years. Capital losses can also be carried forward indefinitely.
- You can use any capital loss from previous three years to decrease your taxes as long as you've realized at least an equal amount in capital gains.
- Declare them on your tax return each year and you can carry them forward indefinitely until you need them.
- Claim all your child care expenses
- Make sure you report the child care expenses for all your children 18 and under on your tax return, even if you didn't incur child care expenses for some of them.
- If you're paying someone such as a neighbour is taking care of your children and getting a receipt for it, it's a child-care expense.
- Lunch programs and after school programs qualify as day care expenses.
- Certain sports schools and camps also qualify as day care.
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