Most Canadians don’t really start thinking about tax season until the deadline is well within sight. But a little bit of extra planning all year round could mean savings of up to thousands of extra dollars that go right in your pocket. Here are five things to start doing now so you’ll get every tax break coming to you.
1. Keep track of expenses. It’s important to know which expenses you can use as tax credits. Specifically, that means allowable amounts for such things as medical expenses, moving expenses, child care costs and charitable donations. File receipts for these expenses as soon as they’re incurred so you have them handy when you need them. Simply take a screenshot of receipts as you get them and store them on your desktop in a specifically-labeled file. “Even small amounts can add up quickly and saving them in a desktop folder throughout the year ensures you don’t lose out on any cash back at tax time,” says Gerry Vittoratos, a tax specialist with UFile in Montreal.
2. Decide on deductions early. A key choice most taxpayers have to make involves whether you should invest in a TFSA or an RRSP. Here’s a good tip: if you’re making less than $50,000 annually, then a TFSA contribution annually may be enough since your tax bracket is low and an RRSP contribution may be more valuable to you when you’re in a higher tax bracket. But if you’re earning more than $50,000, then an RRSP contribution is likely your best choice. Decide on what your budget can handle and set up an automated monthly contribution plan where every month, a set amount such as $400 is taken right out of your chequing account and deposited in your TFSA or RRSP. “It’s tough to come up with the cash for a large RRSP contribution at the end of the year and if you leave it until the last minute, you may find you just don’t have the money to pay for it,” says Vittoratos. “Then the deduction may be lost.”
3. Keep records of your non-registered investments. If you’re an investor, you don’t have to wait until December to do your tax loss selling. You can do it year round, taking a capital loss on a stock or mutual fund unit and using that loss to offset a capital gain later on in the year on a different investment. “This lowers your tax owing and allows you to keep more of your capital gains, which can be very advantageous—especially to high-income earners,” says Calgary tax expert Cleo Hamel. “They can be written off against any gain in the year they are incurred, back three years, or forward indefinitely.”
4. Monitor tax announcements. “Visit the CRA website a few times a year and see what changes the government is putting into place,” says Hamel, who explains how tax changes are made not just at budget time, but at other times during the year so it’s crucial to stay up to date. For instance, in March of 2016, the federal budget announcement included a new refundable tax credit calculated at 15% of up to $1,000 in eligible expenses per year, for supplies bought by an eligible teacher or childhood educator. This was a new credit and by going to the CRA website you can ensure you get all the details early enough in the year to start keeping receipts for the upcoming tax season.
5. Special tips for small business. If you’re self-employed, keep a log of all your business mileage year round. “The CRA does regular mileage checks,” says Vittoratos. “A detailed log book or app for tracking mileage can make this task simple and effortless.” More important, don’t forget to set aside money throughout the year for tax payable, as well as for CPP contributions you will have to make. Putting aside about 30% of any money you take in from the business and depositing it into a separate savings account means you will have easy access to any money owing. “That means you won’t be scrambling at the last minute looking for cash to pay taxes owing,” says Hamel. “That’s good news any time of year.”
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