5 tax Tips to Stop Overpaying Taxes

2020 has seen so much uncertainty with just about… well… everything! and taxes are no different this year. Many families and business owners relied on government funding to just survive in 2020. However, with CERB and CRB being provided pre tax, many people are just not sure how the government funding they have received will impact their taxes. There’s still a few weeks left in 2020 to take some action to reduce your 2020 taxable payable – so here are 5 year end tax tips to help bring down the taxable income!

 

1. Put money into RRSP

RRSP remains the only investment vehicle that allows a reduction of your taxable income, therefore reducing your marginal tax rate. Putting money into your RRSP is always the easiest tax break (assuming you have RRSP contribution room available) and is a “2 birds with 1 stone” impact – you get tax savings + you save for the future. Did you know we do RRSP too? YES! We can help you set up and manage your RRSP as part of your overall tax and wealth strategy! Want to chat more? Book a call!

Did you know you can do a spousal RRSP contribution that will provide you a tax deduction but provide your spouse with retirement income in the future?

The maximum RRSP contribution for 2021 is $27,830; for 2020, it’s $27,230.

Note you have until Feb 28, 2021 to make an RRSP contribution that we can use on your 2020 taxes!

 

2. Medical Expenses

Obviously with most of 2020 being in lockdown or restrictions many people have not necessarily gotten the medical attention they required. Many medical services, especially the parts not covered by insurance, can be claimed as a medical expense! The list is quite extensive and you can see it here.  There is a limit that must be incurred before the tax credit is triggered – for the 2021 tax year, the maximum is 3% of net income or $2,421, whichever is less. For 2020, the max is 3% or $2,397.

 

3. Donations

Needless to say 2020 has not been an ideal year for many. One of the hardest hit areas has been fund raising dependent industries – namely Not for Profits.  Without in person events to do fund raising many are relying on online donations to keep operating. Please remember donations must be made to a registered charity that issues a tax receipt to be eligible as a donation! You can check if the charity is registered with CRA here!

 

4. Tax Loss Selling

Generally speaking capital losses can only be applied against capital gains. The market in 2020 has been wonky, and if you do happen to have any investments sitting at a loss, you could consider selling them at a loss to offset any capital gains in either 2020 or net capital gains in any of the three prior taxation years! There are pros and cons of tax loss selling and we should definitely chat before you execute this!

 

5. Interest Expense

This one gets missed – A LOT! If you borrowed money to invest into a business or for investment purposes, that interest is tax deductible! If you have a loan, say a CC or LOC, that has a personal and business/investment balance, you need to do some math (ew yuck!) to pro-rate how much was for personal vs business/investments.

 

If with CERB or CRB your income was higher than 2019, be prepared to have to pay some taxes. Put some money aside just in case the above 5 tax tips don’t help as much as you hope. As always if you ever want to chat tax and wealth – book a consult! Also remember, if you did receive any of the Business support (wage subsidy, rent subsidy) and you are a sole proprietor that would be taxable income too!

Tax stress

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