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People are always looking for ways to save tax in Canada. Well, we have 7 of the best ways that you can legally save money on taxes this year.
Just like knowing how to check your credit score and what an interest rate means for a loan, Canadians need to have these tax-savings tips in their financial toolbox.
Just remember that paying fewer taxes legally does not mean avoiding paying any taxes. That will get you into tax debt and the Canadian government has ways of collecting your outstanding tax debt including garnishing your wages.
Here are some of the best ways to save more money in taxes in Canada this year.
Did you know that registered charities in Canada give out tax receipts for donations? Those receipts help reduce your tax bill.
You don’t necessarily have to donate money. You can donate items or your time. In certain circumstances, you get a receipt for the fair market value of the items or service.
The important thing to remember is to establish the fair market value of the goods or service. For example, if you donate food to a charity luncheon, if the charity can prove the fair market value of the food, they can issue a receipt for it.
So, if you are donating food to a charity, keep your grocery bill.
According to the CRA, if you sing at a charity event, make sure to get paid. If the charity pays you $100, the next step is donate a cheque for $100. The charity then issues you a charitable donation receipt for $100. That comes off your taxes.
It is always a good idea to ask beforehand if you can get a receipt for your donation or gift.
A Right to Reimbursement is another way a charity can issue a receipt for a volounteer’s out-of-pocket expenses. If the volounteer doesn’t want reimbursement but instead wants a tax receipt, then the volounteer needs to put that in writing.
This way, the service becomes a non-cash gift. You can get a receipt for the gas used when you use your car for the charity. Again, this needs to be agreed on beforehand with the charity.
The first thing you can try is to invest money in a tax-advantaged account, such as a Registered Retirement Savings Plan (RRSP). That’s because the money you deposit into an RRSP is tax-sheltered.
So, not only will you save money on your taxes, you can eventually use your RRSP to retire or to finance certain large purchases.
Similarly,, the funds you deposit into a Tax-Free Savings Account (TFSA) earn tax-free interest. However, a better way to use the TFSA is to use the TFSA money for investing.
When your investments are part of your TFSA, the profits you might earn are also tax sheltered. You can save more money.
Unlike an RRSP, you’re allowed to withdraw from your TFSA whenever you want and the funds will always be tax-free, not just tax-deferred.
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If you run a business, you may be able to write off certain types of capital losses on your taxes. Common examples of losses that are tax-deductible include unpaid customer invoices, thefts and investments that have lost value. Eligible capital losses can amend past bills or offset your yearly capital gains.
To save even more money on your income taxes, there are a number of personal costs that you can claim including:
If you have run a home business, you have to calculate a percentage of your workspace expenses then report those costs to the CRA so that they can be claimed on your taxes. Here are some home business expenses that Canadians commonly deduct:
Moving is rarely easy or cheap but thankfully you may be able to claim some of your expenses on your taxes if you had to travel at least 40 kilometres to reach a new home-based workplace during the previous year. Deductible moving expenses include:
If you, your spouse or your common-law partner have healthcare costs that qualify for non-refundable tax credits during the current year, they can be claimed on your taxes. The same goes for children or other dependents. For 2022, medical costs that total less than $2,479 for 2022 or 3 % of your line 23600 income are eligible. Examples:
Another way to pay less tax in Canada is by transferring a portion of your income to one of your primary family members. Many self-employed people will do this by hiring their spouse, common-law partner, or child as an employee of their home business. Typically, this would need to be someone who’s already earning a lower income than yourself.
Additionally, you may be able to transfer some types of taxable gains and dividend income to the lower-earning taxpayer, which can further decrease your own taxable income and even get you moved to a lower tax bracket.
Check out how to file your taxes as a couple.
There’s no denying the importance of paying your income taxes on time. If you don’t, you could receive a stiff late penalty from the CRA, as well as more interest added to your final tax debt.
Although taxpayers who earn a regular income have until April 30 to file their taxes without penalty, self-employed individuals have until June 15.
Note: if any of the due dates fall on a weekend or holiday, CRA will push the date to the next business day.
Hire a Tax Expert
Paying taxes is often more complicated than it looks, so it may be easier to hire an accountant to manage the whole ordeal for you. While professional tax services can be pricey, they may save you stress during tax season. Plus, they may discover that you’re eligible for more tax deductions and credits than you would have realized on your own.
Filing your taxes can be expensive and annoying but there are ways to make it better. Plus, the credits and deductions you’re eligible for can vary depending on your income, assets, expenses and employment. Don’t forget to save your receipts, prepare all your paperwork, consult the CRA website and do all you can to pay fewer taxes this year.
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