Do you like paying too much income tax? Do you pay more than you should? By not taking full advantage of deductions, you may be paying more income tax than you need. Are you taking advantage of every deduction available to you? Do you file your income tax return on time? Do you pay installments quarterly and on time? The following are some of the more common missed deductions that may be contributing to your high income tax bill.
You can transfer to a spouse or parent from a student who has income too low to claim the credits themselves. There are some restrictions and forms to sign; however, it is easy to do the transfer.
Childcare expenses can be deducted from income by the lower income spouse, subject to certain limitations. These expenses include day-care, baby-sitting, boarding school and day camps. You need to provide a Social Insurance Number for those individuals to whom you paid to get the deduction.
Employees using their own automobile for work (other than to / from the work place) without reimbursement from the employer can deduct the business portion of their automobile expenses. If you are reimbursed and the amount is not “reasonable”, you can still claim a deduction for the non-reimbursed portion. Your employer needs to complete form T2200 for you to get the deduction.
Charitable deductions made by you or your spouse during the year should normally be added together and claimed on the income tax return of one spouse. A higher credit is available for donations over $200, so it makes sense to aggregate the credits and use the low rate only once. Donations totaling less than $200 can be claimed on either return, either jointly or separately.
You can claim medical expenses for yourself, your spouse, and dependent children. Either spouse can make the claim. You can claim either for the calendar year, or any 12-month period that ends in the taxation year. Dental bills, eyeglasses and private medical insurance (including travel medical insurance) are some of the commonly missed expenses. Payments to a nursing home may qualify as a medical expense for certain seniors. Remember, medical expenses must be greater than 3% of your net income (maximum of $2,237 for 2016) to be claimed.
If you plan properly, you can ensure interest is deductible. Loans must be incurred to purchase investments (with the intent to earn income) to have the interest deductible. Ensure you have the proper documentation for the interest to be eligible. Carrying charges include investment counsel fees, accounting, fees, and safety deposit box charges.
Moving expenses include moving costs, real estate commissions on the sale of your former home, property purchase tax on your new home, and legal fees. For students, you may be able to deduct moving expenses to start a job (or a summer job) or to start a business. You must either earn income at the new location from the new job or business, or have moved to be at least 40 KMs closer to your present job.
To take advantage of the GST and PST tax credits, you need to file an annual income tax return; even if you have no taxable income. The basic GST credit for 2006 is $232, with an additional credit of $232 for your spouse and $122 for each dependent child. The PST credit is $75 each for yourself, your spouse, or your dependent children. The amount of these tax credits is dependent on your annual income.
To maximize your RRSP deduction, you should start early in your life, contribute the maximum each year and use spousal RRSPs, including common-law spouses; which allows you to take advantage of lower tax rates. From an investment perspective, you should take advantage of foreign content rules and diversify to reduce your investment risk. If you are a first-time home buyer, make use of the RRSP Home Buyer’s Plan. If you are planning to return to school, make use of the RRSP Lifelong Learning Plan. And, if you are going to receive severance payments, put them directly into your RRSP tax-free.
The deadline for filing your previous year income tax return is April 30th. For self-employed individuals, this deadline is June 15th; however, any income taxes payable is still due on April 30th.
If you file a late return, there are late-filing penalties (5% plus 1% per month to a maximum of 17%) on the tax outstanding, plus interest (at the prevailing rate set by Canada Customs and Revenue Agency). Additional penalties can be incurred for failure to make installment payments. If you fail to file for a second time in three years and the Minister issues a formal demand to file, there is a “second occurrence” penalty which is double the amount mentioned above.
Interest and penalties are not tax deductible and can add up quickly at the rates charged by Canada Customs and Revenue Agency. Ensure you file your return on time, even if you cannot pay the taxes due.
The above list is some of the more common deductions that are missed by taxpayers. You should discuss your situation with your tax advisor to ensure that you are minimizing your tax bill.
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Now’s the Time to Check Your RRSP
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Your Notice of Assessment (NOA)
Child Care Expenses
As a Student, Do I Have to File a Tax Return?