Thinking of ways you can get an early start on your tax planning can be overwhelming. Here are some ways to put more money back in your pocket:
1. Get your credits and deductions.
Make the following payments by December 31, to qualify for deductions or credits in the next tax year) and make sure you claim these to maximize tax savings):
- Investments that carry charges, such as management fees,
- Loan interest,
- Safety deposit box rent,
- Political contributions,
- Tuition fees,
- Professional designation fees
- Fitness credit
- Home Buyers' amount
- Interest paid on student loans
- Graduation tax credit
- Day-care costs
2. Give to charities.
Charitable donations must be made by year-end to generate up to a 20 per cent tax credit for the current year.
3. Pay medical expenses.
The medical expense credit can be claimed for any 12-month period, not just the calendar year. To maximize the credit, the lower-income spouse can report all of the family's eligible expenses.
If you expect a major medical bill early next year, consider paying it now to include it in your current year total, since the tax credit is based on the payment date, not the delivery date. Private health insurance premiums qualify for the credit, including out-of-Canada medical coverage.
4. Get set for tax-free savings with a Tax-Free Savings Account (TFSA).
Since it was introduced in 2009, the TFSA has become a powerful savings tool because any investment growth and income in your TFSA grows tax-free. This means you won't pay taxes on interest, capital gains or dividends when you earn them or when you withdraw them. Just think of the TFSA as a vessel for a portfolio of investments to achieve your goals for savings, income, and growth.
5. Think about your RRSP.
Each year, as you decide on your TFSA contribution, you may also be considering how much to put into your RRSP. Contributing to your RRSP could really reduce your tax bill in the upcoming year. If you can't max out contributions to both, it may be time to review your savings strategy. If you are thinking of contributing to your RRSP, you can beat the RRSP rush that happens in January and February by making an appointment before Christmas. (It's kind of like beating the Christmas shopping rush.)
Both the RRSP and the TFSA can save you money and taxes. Let's take a deeper look how they can each meet your needs:
- Both can work together.
- An RRSP-TFSA split may be useful if you have pension benefits that reduce RRSP contribution room or if you want to save more for retirement. You might use a TFSA to save for short-term needs or emergencies. You can use both to split income with your spouse. We can review your goals to set a suitable strategy.
- Each has its benefits.
- With higher contribution limits than the TFSA, your RRSP is ideal for retirement savings, especially if you reinvest your tax savings. RRSPs promote long-term savings because withdrawals are taxed and can't be returned to the plan [with a few exceptions that let you borrow from a plan to buy a home with the Home Buyers Plan (HBP) or go to school with the Lifelong Learning Plan (LLP)].
In contrast, you may take money out of a TFSA and contribution it again later. A TFSA has no upper age limit for contributing, unlike RRSPs. TFSA withdrawals also don't count as income, so it won't affect benefits like Old Age Security.
Our experts can help you make smart tax decisions so you can save money and plan for your future with immediate and long-term savings goals. We're here to help.
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