10 Year-Round Tax Tips
You may be dreaming of vacationing at the cottage or heading off to the beach, but I wanted to take a minute to talk about some ideas to help you make the most of your tax deductions, all year. Here are ten year-round tax tips to keep in mind:
1. Open a TFSA
The Tax-Free Savings Account allows Canadians to save and invest $6,000 a year and earn tax-free income and gains for life. Withdrawals aren't taxed, and they do not negatively affect your eligibility for government benefits. The TFSA also has carry-forward room, meaning if you haven't contributed to a TFSA yet, you can invest $75,500 as of 2020.
2. Maximize your RRSP contributions
A Registered Retirement Savings Plan is an investment vehicle that allows you to save for your retirement on a tax-friendly basis. Funds you contribute are not taxed until you withdraw them. RRSPs also offer carry-forward contribution room. Check your previous year's Notice of Assessment to see the carry-forward room you may have.
3. Set up a spousal RRSP
A spousal RRSP enables a higher-income taxpayer to deduct contributions (subject to their contribution limits) against their taxes but invest in their spouse's name. This future income splitting strategy is particularly effective if the spouse is in a lower tax bracket when the funds are withdrawn.
4. Open RESPs for your kids
Contributing to a Registered Educational Savings Plan lets you take advantage of the Canada Education Savings Grant, which is free money from the government. (20% or more, depending on family income). The annual amount that will receive a matching grant is $2500, but you may also be able to catch up on missed grants from prior years.
5. Explore pension splitting
If you've received pension income in the year, 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.
6. Double check your return
Before you send in your tax return, check first for accuracy. Make life easier and use tax software, an online service or have a tax professional complete your return to ensure the best result. Avoiding simple mistakes can help your return get through quicker.
7. Report all income
Make sure you've reported all the money you've received. CRA will eventually find it as they get a copy of all the information slips you receive if you forgot something. This can slow down the return process or cause the need for an adjustment.
8. File a tax return
Some people argue that the only way to ensure your tax return doesn't get audited is not to file a tax return. Non-filers risk getting caught and getting hit with interest and penalty fees.
9. Don't cheat
The CRA has identified industries with a higher incidence of cheaters, such as construction, subcontractors, unregistered vehicle sales, auto repair, direct sales, childcare, cleaning and restaurants. If you work in one of these industries, you are more likely to hear from the CRA, so take extra care to ensure accuracy. Also, be aware of your online musings as the CRA may be watching those online forums to look for cheaters.
10. Review your organization system
It's essential to have a sound organizational system to track all of the tax information that accrue throughout the year. (Charitable receipts, medical expenses etc) Now is a great time to sit down and make sure you're still on track and that nothing is missing or lost thus far.