Are you a Canadian taxpayer trying to reduce personal taxes?
While we all have to pay taxes, several deductions and tax credits are available to you to get the most out of your tax return. A substantial tax plan is a vital component of your financial situation, regardless of your net worth.
Below are some of the tax planning tips that can be utilized by most Canadian taxpayers to reduce their tax liability.
Claim Medical Expenses
Aside from medical care, there are costs for prostheses, insulin, insulin pens, hearing aids, eyeglasses, contact lenses, etc. You only can claim prescribed medical expenses and not over-the-counter ones.
Medical expenses can be used to reduce personal taxes. If you or a dependent has medical expenses that aren’t covered by insurance, you can claim a tax credit to minimize your tax payment. Many of these costs, such as full-time and specialized care, can be pretty high.
To get maximum tax advantage combine medical expenditures for you, your spouse, and dependents on one family member’s tax return
ChildCare (DayCare) Expenses
Second option to reduce personal taxes is to claim childcare/daycare expenses.
Childcare expenses include daycares, summer camps, overnight boarding schools, and in-home providers like nannies. You can use childcare expenses to lower your taxable income.
For a kid aged seven or younger, you can claim up to $8,000 per year and $5,000 for children aged seven to sixteen.
Registered Retirement Savings Plan (RRSP) & Spousal RRSP Contributions
The third method to reduce personal taxes is to buy RRSP. A Registered Retirement Savings Plan (RRSP) benefits you in two ways: it lowers your taxable income and allows you to grow your money until you retire. The money you put into your RRSP is tax-deferred, which means you won’t have to pay taxes on it until you withdraw it (presumably in retirement). You reduce your taxable income for the year by contributing to your RRSP. Lowering your taxable income is an excellent method to cut down on your overall tax bill for the year.
Contributing to a spousal RRSP may help you maximize your tax advantage if you are in a higher tax rate than your spouse (within your contribution limit for the year). It has two distinct advantages. If your spouse’s income is less than yours and is taxed at a lower rate, they wouldn’t have obtained the same tax savings as you even if they contributed to the RRSP on their own. Furthermore, when your spouse withdraws from the RRSP (or RRIF), their tax rate will be lower than yours, resulting in reduced tax payments.
The fourth method to reduce personal taxes is to make donations to Canadian registered charitable organizations. Donations can assist you in obtaining a provincial and federal tax credit, allowing you to save money on your taxes. You can claim tax credits not just for this year’s gifts but also for unused donations made up to five years ago, providing you have proof that you donated to approved organizations.
Because it’s a non-refundable credit, you should only utilize it when your tax bill is expected to be higher.
The fifth method to reduce personal taxes is to claim employment expenses. Employees who worked at home in 2021 due to COVID-19 and meet certain conditions, will be eligible to deduct home office expenses (work-space-in-the-home expenses, office supplies, and other expenses such as employment use of a cell phone, long distance calls for employment purposes, etc.). You are eligible to deduct home office expenses you paid if you meet the following conditions:
- you worked more than 50% of the time from home for a period of at least four consecutive weeks in 2021 due to COVID-19
- the expenses were directly related to your work
However, you cannot deduct home office expenses if all of your expenses were or will be reimbursed by your employer.
Pay and file your taxes on time to avoid additional fees, penalties, and interest. Getting the most out of your registered savings accounts, picking the right stocks to invest in, taking advantage of spouse tax benefits, and accounting for all child-related tax credits.
If you have questions regarding tax credits or deductions, educate yourself and see an accountant or contact us.