Now that the new year has arrived, there are only about four months before the deadline for filing taxes passes. This means that you have very few options for lowering your tax bill. The best of these options is making charitable contributions to approved charities.
However, making charitable contributions is not the only way to reduce your tax bill. The following are some strategies provided by TurboTax Canada for reducing your tax incidence.
1) Contribute to your RRSP (Registered Retirement Savings Plan).
If you have not yet maxed-out on your contribution limit, you can get a tax deduction for every dollar you save in your RRSP. This is one of the most effective ways of lowering your taxes.
2) Save through a TFSA (Tax-Free Savings Accounts).
Saving through TFSAs is recommended because the interest earned is tax exempt. When you start withdrawing your funds, you will not be required to pay any tax. The Canada Revenue Agency has set $5,500 as the limit for annual TFSA contributions.
3) Donate to charities.
Any donation to charities or organizations that have CRA’s seal of approval is tax deductible. Up to 75% of your net income can be donated to charities.
4) Sign up your kids in artistic or physical activity programs.
This will enable you to take advantage of the Children’s Arts and Children’s Fitness tax credits. You can claim up to $500 tax deduction per child for both of these programs.
5) Hire a member of the family in your business
Employee income is tax deductible, so hiring a member of the family in your business will help to ensure that less money goes out of the family circle.
The holiday season is a time for giving not only to our friends and family but also to charitable institutions. This meaningful act enables us to make a difference while receiving tax credits in return — funds that make this a sustainable undertaking. Make all donations count by taking the following precautions:
1. Do a background check.
Criminals use names that sound similar to well-known charities. Look through the list of registered institutions compiled by the Canada Revenue Agency to verify. Ask for a receipt as well as this will be a requirement for claiming tax credits.
2. Go beyond charities.
There are a number of qualified donees that may give receipts even though they are not charitable organizations. These can also be used to gain tax credits according to the Income Tax Act. Examples are municipalities, national art clubs, and amateur athletic federations.
3. Donees have discretion on receipts.
These groups are not mandated to provide a receipt to their donors. People must ask them explicitly to acquire this proof of donation for tax purposes. Inquire about it before handing any funds to avoid any confusion.
4. Some non-cash donations can lead to tax credits, too.
Stocks, land, and personal property all merit credits when it’s time to pay for tax. Note that donated securities are not subjected to capital gains tax while donated properties are. Helping charities through volunteer work does not result in tax credits. The CRA has published guidelines on this so be sure to browse their website. TurboTax Canada also has helpful information on the matter.