Tax Tips to Save You Money
Heed these five money-saving tax tips to help you keep more of your hard-earned cash where you like it – in your pocket.
Do it yourself
Nowadays there are many software programs available that make filing your taxes a whole lot easier. These programs prompt you with questions and automatically ensure that you apply for all relevant credits. They also save you the trouble of having to bust out your calculator.
Using software to file your taxes is significantly cheaper than hiring an accountant. However, if you have a particularly complicated tax life (e.g. if you run your own business) it may be worth it to call in a professional.
Claim all medical expenses
Medical expenses are one of the most overlooked tax breaks. You may think you haven’t accrued enough expenses to meet the claim eligibility threshold, but you’d be surprised how quickly things can add up.
The list of eligible medical expenses is extensive, including prescription drugs, eyeglasses, health-related home renovations, dental work, and even buying gluten-free bread (if you’ve been prescribed it). Comb through and compile your receipts to make sure you’re claiming everything you’re eligible for.
Claim all self-employment expenses
Are you self-employed? Do you work out of your home? You may be eligible to claim a deduction for whatever part of your home that you work out of. For example, if you are a homeowner, you can claim a portion of your mortgage interest, property taxes, and capital cost allowance equal to the percentage of your home that is reserved for business. If you rent your home, you can claim a portion of your monthly rent.
Any expenses directly related to your business (e.g. supplies, client entertainment, and business travel costs) are fully deductible. Again, make sure you’re keeping a close record of all your receipts!
Transfer unused credits
Several tax credits can be transferred between individuals that share a certain relationship. For example, spouses are eligible to transfer several credits, such as the Child Tax Credit. Disability credits can be transferred from a dependent to a caregiver under certain conditions.
Tuition, education and textbook credits for students can be transferred to a spouse, parent, or grandparent, provided the student has already used the credits to reduce his or tax payable to zero. Alternatively, these credits can be carried forward so the student can use them at a later date.
Transferring unused credits is an easy way to claim tax benefits that wouldn’t otherwise apply to you.
Reinvest your RRSP return
More than two-thirds of Canadians made contributions to their RRSPs prior to this year’s deadline for the 2013 tax year. If you were one of them, congratulations! You’ve made a wise decision about saving for retirement.
But if you’re thinking about using your RRSP tax refund to splurge on a nice vacation, reconsider.
Spending your RRSP refund, while tempting, basically defeats the purpose of the RRSP. Since any money you invest in an RRSP will be taxed when you withdraw it after retirement, the return you receive today is essentially nothing more than a long-term loan from the government. The tax man is going to come back for that money (or at least a large part of it) eventually.
Rather than spending, it’s a much better idea to reinvest your RRSP return and watch it grow. Your future self will thank you.
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