3 ways to cut your tax bill next year
By Bryan Borzykowski (canadianliving.com)
Always dread filing your taxes? Make it easier next time around — lower your tax bill by checking in with these five income tax tips.
The last thing you may want to do right now is think about next April’s tax return. But now, while you’ve got taxes on the brain, is actually the perfect time to start preparing for the future.
Here are five things to consider now that could help you lower your tax bill later.
1. Review your investments
Most people know that investments held inside an RRSP or TFSA grow tax-free. But any investments held outside those places — including your high-interest savings account — are subject to tax. The amount of tax payable varies, depending on the investment, so it’s wise to review your portfolio to make sure you’re holding the right securities in the right type of account.
Bond payments, for instance, are taxed as income — about 46 per cent if you’re in the highest tax bracket in Ontario — so it’s best to hold them inside an RRSP. Dividends are taxed at a much lower rate, about 23 per cent in Ontario, so they’re fine to hold in a nonregistered account.
2. Find tax breaks and claim what you can
There are numerous deductions and credits people can claim, so brush up on what tax breaks are available. There’s a Children’s Fitness Tax Credit, for example, so if your kid is going to play baseball this year, make sure you keep the bill.
Sole proprietors can claim everything from office supplies to vehicles and travel, so, again, be aware of what you’re spending and which bills should be stored safely in a shoebox.
3. Invest in your RRSP
When you receive your tax refund this year, you should immediately put it into your RRSP. That’s because every dollar you put into that account lowers the amount of income that’s subject to tax. So not only will you end up owing the government less, but they’ll once again send you a cheque.
