If you’re like most Canadians, you don’t really start thinking about tax season until, well, right around tax filing time. That’s too bad because a little bit of extra planning could mean hundreds if not thousands of extra dollars in your pocket. Here are five things to start doing this year to get every tax break that’s coming to you—each and every year.
5 tax tips to keep more money in your pocket
- Give a little thought early in the year to what types of tax deductions you want to claim and the types of savings vehicles you want to use. For instance, 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 worthwhile. “Decide on what your budget can handle and set up an automated monthly contribution plan where on the first of every month, a set amount—say $200—is taken right out of your chequing account and deposited in your TFSA or RRSP,” says Gerry Vittoratos, a tax specialist with UFile in Montreal. “An RRSP contribution could become a budget buster if you leave it until the last minute every year and discover you don’t have the money to pay for it.”
- Keep track of expenses that you can use as tax credits, specifically medical expenses, transit passes, and charitable donations. Archive these receipts so you have them handy when you need them. As they come in, simply take a photo or screenshot of these receipts and store them on your desktop in a specifically allocated folder. “These receipts add up quickly and archiving them as you go ensures you don’t lose out on any cash back at tax time,” says Vittoratos.
- Make a point to check out the Canada Revenue Agency website a few times a year and see what announcements the government has made regarding tax changes. It pays to keep 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.
- If you’re an investor, keep track of your non-registered investment account(s) to tax plan year around. “You can do tax loss selling throughout the year, taking a capital loss on a stock and using that loss to offset a capital gain later on in the year on a different investment,” says Vittoratos. “This lowers your tax owing and allows you to keep more of your capital gains.”
- If you’re self-employed and run a sole-proprietorship, don’t forget to set aside money throughout the year for tax payable, as well as for CPP contributions you will have to make. “I always recommend that the self-employed set aside 30% to 40% of any income and place it into a designated savings account so these lump sums of tax money owing are ready and accessible,” says Cleo Hamel, a senior tax specialist with American Expat Taxes in Calgary. As well, keep a log of all your business mileage year round. “The CRA is taking a close look at mileage deductions now,” says Vittoratos. “They’re doing regular checks and its common to get audited on this.” Consider tracking your mileage with a GPS to make it effortless. But a well-kept log book, or app for tracking mileage can also make the task simple and comprehensive.