Filing Taxes

March 8, 2012 by staff 

Filing Taxes, Five simple ways to help Canadians keep more money in their pockets, While Canadians tend to think about filing income taxes as a last-minute “must-do” task, a little pre-deadline planning can not only help alleviate tax season stress, but also saves Canadians some money, advises RBC Financial Planning.

“Tax planning really shouldn’t be left until the annual tax filing deadline arrives,” said Jason Round, head, Financial Planning Support, RBC Financial Planning. “There are strategies you can benefit from throughout the year that can help you boost your tax savings and get on the road to achieving the financial goals you have in mind all that much sooner.”

Five simple tax tips from RBC Financial Planning:

Take advantage of tax credits and deductions: One of the easiest ways to boost your tax savings is to take advantage of all your eligible tax credits. For example, look at any medical expenses, child and dependent care, tuition, education and textbooks, children’s fitness and art credits, first time homebuyer’s credits, as well as your charitable donations.

Ensure your investments are tax-efficient: Tax-efficient investing reduces or defers taxes – this allows you to keep more of your money in your pocket. Consider basic investment strategies – for example, a spouse who earns higher income can pay the household bills, while the lower income earner can invest. This will allow the investment income to be taxed at a lower rate, at the lower income earner’s level. Also, holding more tax-efficient investments outside of registered plans like RRSPs and TFSAs, while keeping interest-bearing investments inside those plans, can help reduce your tax bill.

Structure your income to take advantage of income splitting opportunities: Whether you are retired now or preparing for that day down the road, an effective plan can not only help you build for the future, but potentially benefit your tax situation today. You can find tax savings by using strategies such as spousal RRSP contributions, spousal loans, trusts and by taking advantage of income-splitting provisions.

Take advantage of TFSAs and RRSPs: With a TFSA, your money grows tax-free, with no tax on your withdrawals; you also can contribute up to $5,000 per year, with the ability to carry forward any unused contribution room to future years. With an RRSP, if you made a contribution for this past 2011 tax year but anticipate you’ll be earning more income in future, it may be advantageous to carry forward the resulting RRSP tax deduction to a future tax year. This will help to maximize your tax reduction. Regular contributions to TFSAs, RRSPs and other investments can help you stay on track to save taxes.

File your income tax return on time: It’s important to comply with filing deadlines to avoid paying a late-filing penalty. This penalty is a minimum of five per cent of the balance owing on your return, plus another penalty of one per cent of the unpaid tax, multiplied by the number of months the return is not filed (to a maximum of 12 months).

“A qualified accountant or financial planner can review your available tax savings opportunities and help you implement strategies specific to your situation,” advised Round. “Having a few simple tax savings strategies in place can help you keep more money in your pocket during tax season.”

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