All types of taxes are a bane for nearly everyone except accountants, but they’re an inevitable fact of your life. Taxation regulations are constantly changing, and it may seem like the deck is really stacked against the honest Canadian taxpayers. Do not despair, though; you can find tax advice and learn various ways to limit your tax exposure. PersonalBanker can help you achieve exactly that.
Here are tax-saving tips for taxpayers.
Tips #1: Save to buy, borrow to invest
You probably want to be debt-free, but the days of debt-free living are long gone. Nearly everyone in Canada is carrying a certain type of debt. Don’t be surprised to hear that having the right kind of debt can make a significant dent in your current tax bill. First, however, you need a well-thought-out plan to eliminate the bad debt and maintain the good debt. For example, a credit card debt you incurred to purchase a luxurious sofa you have had an eye on isn’t the right debt. But a loan you used to purchase an investment is good debt.
From a tax perspective, you may be better off using savings or cash to purchase discretionary items and borrow financial resources to invest. But, remember, nothing is easy or straightforward when it comes to managing debt and minimizing tax obligations. So seek tax advice from the tax professionals at PersonalBanker to figure out how debt management could help minimize your tax obligations.
Tip #2: Max out your Registered Retirement Savings Plan
Think of RRSPs as the federal government’s apology for its tax-gauging regulations. The good news is that you can take advantage of this bone the government throws you and get the most value from it. Remember when we told you to borrow to invest? Well, maxing out your RRSP is a viable option as long as you can service the loan within a reasonable period.
Tip #3: Rethink your investments and taxes
Some investment options such as stocks are often accorded preferential tax breaks on capital gains and dividends, while other fixed-income investment projects are not. Based on the rate of inflation and your tax bill, holding your financial resources in fixed-income investments may cost you cash. So, suppose you intend to hold a tax-protected income portfolio and retirement portfolio. In that case, you may want to keep a small portion of your fixed-income investment in a taxable portfolio.
Consult with PersonalBanker to figure this out.
Tip #4: Marriage manoeuvres
Did you know that contributing to your spouse’s retirement account or income splitting with him or her can reduce your tax bill? This is true, particularly if there’s a significant gap between your income levels. However, keep in mind that this approach and other similar marriage manoeuvres require professional help to structure the necessary contributions in a way that can withstand tax audits.
Tip #5: It’s time to start a business
Most Canadians don’t know that owning a business lets them deduct the expenses they incur from their taxable income. These expenses include home office expenses, business use of your personal ca, salaries paid, and all relevant supplies you need to provide services or goods. These deductions can reduce your tax bill significantly.
Seek professional tax advice
Keeping track of all write-off that apply to your situation is challenging. For many Canadians, finding an experienced tax professional is an essential step in getting reliable tax advice and minimizing tax bills. All the five tips mentioned are legal, but a tax professional can analyze your unique financial situation, offer you tax advice, and help you figure out the most viable tax management option.