Tax season is upon us.
If you’re dreading filing your taxes this year, the motivation you might need is the possibility of getting a bigger tax refund.
With inflation and the skyrocketing cost of living, this extra money is needed by the government more than ever.
So how do you increase your tax refund? By lowering your taxable income and reducing as much as possible the tax debt you owe to the government.
That’s where tax deductions and credits come in. With so many choices, navigating what to focus on can seem overwhelming.
Do not worry! Daily Hive spoke with financial planner and paid accountant Ed Rempel about the best ways to maximize your tax return.
Enrollment season will be here sooner than you think! Start early with:
➡️ Find out what’s new for this tax year;
➡️ Avoid interruptions in benefit and loan payments;
➡️ Have time to ask for help.
More info 👉🏽 #CdnTax pic.twitter.com/iuuvRQqSHv
— Canada Revenue Agency (@CanRevAgency) February 10, 2023
First, what information should you have on hand before filing your taxes?
Before deciding which tax deductions and credits you want to claim, Rempel says you need to make sure you have the proper receipts.
Of course, you’ll need the usual T4 and T5 tax returns for your income, but the savings come from deductions and credits that likely won’t come with supporting documentation.
“It’s beneficial for you to collect all deductible expenses and have receipts or receipts for them,” says Rempel. “They should have receipts for donations and medical care, but need to track certain expenses like work-from-home expenses.”
He adds that it’s also helpful to keep track of your carried forward balances or deductions and credits from your last tax return that you haven’t claimed.
“A good number can be claimed in the years to come,” he explained.
Tax credit vs tax deduction
Before we dive into the different types, it helps to understand the difference between a tax credit and a deduction.
Simply put, deductions reduce the taxable portion of your income, while credits reduce taxes owed.
Which guarantees you a bigger tax refund, says Rempel, if your income is over $50,000 a year, tax deductions are your best friend.
“The main difference is that tax deductions reduce your taxes based on your tax bracket, while tax credits reduce your taxes based on the lowest tax bracket, which is around 20% “, he explained.
He gives the example of a person with an annual income of $80,000 who would be in the 30% tax bracket.
“A $10,000 tax deduction lowers your tax by $3,000, while a $10,000 tax credit lowers your tax by $2,000,” he said.
He adds that many state benefits are based on your taxable income. So if you apply for the Canada Child Benefit (CCB) as a parent, you can get a larger refund if you have tax deductions.
The best deductions and credits to maximize your tax return
Contribute to your RRSP
“The higher the income, the better it works,” Rempel said.
For example, if your income is over $162,000, your maximum deposit for 2022 is $29,210. Since you are in the 45% tax bracket, you should get a tax refund of $13,000.
If you’re not sure how much to contribute to your RRSP to get the most bang for your buck, Rempel says it’s based on:
- RRSP contribution required to reach your retirement goal
- Contributions required to maximize your life RRSP space
- How much you can contribute to your current marginal tax bracket
- Your current RRSP contribution limit (which you can find here)
- Your available money (or how much you could borrow)
Use this RRSP calculator to estimate the amount of your tax refund.
claim moving expenses
If you got a new job last year and had to move at least 40 km closer to your new place of work, you can deduct all your moving expenses.
Yes, this means you can claim the costs of flights, moving, selling your property, breaking a lease or mortgage and temporary accommodation, which can add up to a lot.
Claim self-employment or homework expenses
If you own your own business and work from home, you can deduct expenses related to working from home. You can also claim car travel expenses, but be sure to keep this information.
If you are not self-employed but still work from home, you can still claim these costs. Last year, eligible employees received up to $500 if they worked from home for 250 days or less.
There are no updates on this franchise this year.
ask for donations
If you donated to many causes this year, you might get some good karma. Rempel says that after the first $200, you can recoup between 40% and 50% of donations each year.
Apply for childcare costs and family allowances
You can deduct child care expenses such as daycare, summer camps, and child care providers such as nannies as a deductible.
As Rempel said, government benefits like CCB are based on your taxable income, so claiming a child care expense deduction could help you get a bigger refund.
claim medical expenses
Don’t throw away your bills and prescriptions for dental exams, no need to buy gluten-free products if you have celiac disease, and insulin pens! Medical expenses like these can be claimed as non-refundable tax credits.
Subtract the interest on the loan to invest
“Borrowing money for investments can be the best long-term wealth-building strategy for the right people if done correctly,” Rempel said.
If you borrow a large sum of money to make investments, the interest can essentially be deductible and earn you a huge refund.
balance brought forward
Didn’t you claim tax deductions or credits from tax year 2021? no perspiration
Rempel says many of them can still be claimed years later.
As an example, he cites RRSP contributions that you were unable to deduct last year. You can factor this into your tax deductions this year for a larger refund.
For college students, Rempel says tuition is capped based on income, so you may have unused credit to claim.
If you are self-employed, you can deduct the cost of working from home based solely on your use of the space to generate business income.
However, Rempel says you can defer this to claim next year’s business income deduction.
Charitable donations are capped at 75% of your income, but can be deferred for up to five years, depending on the financial advisor.
Finally, moving expenses can only be deducted based on your income for that year, but if you started later in the year and didn’t earn enough, you can claim them back. Next year.
#ways #Canadians #bigger #tax #refund #year
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