Taxes are a fact of life, but there are ways to reduce the amount you pay every year.
One way to avoid paying tax on capital gains or interest income is to shelter your investments in an RRSP or TFSA. While you can put your retirement savings in either type of account, any funds you withdraw from an RRSP will be considered taxable income. However, if you put your retirement savings in a TFSA, any withdrawals made aren’t considered taxable income—reducing the likelihood of any clawbacks of government benefits (such as Old Age Security).
These are just some ways to reduce your tax bill now and in the future. We asked five of our contributors to provide you with their favourite tax-saving tips. Here’s what they had to say:
“If you withdraw money from your TFSA in 2017, keep in mind that you don’t get that TFSA contribution room back until the following calendar year. That means if you are close to your TFSA contribution limit, you’ll need to hold off contributing until 2018. If you forget and over-contribute in 2017, you’ll pay a penalty.”
“If you make any freelance income at all, always save your receipts. As a self-employed person, you’re allowed to deduct certain expenses, which is why you need to hang onto these receipts. Even if you still have a full-time job or your business is not registered, you can still claim certain expenses which may reduce your tax bill.”
“Invest in yourself and learn how to do your own taxes. I paid $500 once for a tax lesson with an accountant and now save hundreds each year by in-sourcing.”
Jordan Lavin (Twitter):
“Just because you’ve submitted your tax return, that doesn’t mean it’s set in stone. If you made a mistake or forgot to claim something, you have up to 10 years to change your return. If there’s a chance you’re owed a refund, you can use the Canada Revenue Agency website to make changes.”
“Pay your taxes on time. Canadians who do not pay their taxes on time face a late filing penalty and interest on the amount owing. Even if you don’t have enough to cover the taxes owed, pay what you can. Your balance will be subject to interest, but at least you won’t have to pay the penalties.”
The bottom line
Paying less tax should be one of your top priorities. Reducing your tax bill will leave you with more money in your pocket and give you the ability to save more for the future.