Cutting down on your expenses is one of the tenets of good personal financial planning. That same principle applies to paying taxes. While you should certainly render up to the Canada Revenue Agency what is owed to the CRA, too many Canadians pay the CRA more than they need to every year.
If you’re wondering how to save money on taxes, the good news is that you can take active steps that will trim your tax bill. Keep reading for five simple tips that help you keep your money in your wallet.
1. RRSP and TFSA
Two of the simplest ways you can save money on taxes are with a registered retirement savings plan or a tax-free savings account. These two accounts provide you with two different kinds of tax benefits.
The RRSP is a tax-deferred strategy. You invest pre-tax income into the plan up to the annual limit, which reduces your total taxable income this year. You pay no taxes on whatever gains the plan makes until you start withdrawing from the account.
Tax-free savings accounts work in the opposite way. You invest money you already paid taxes on, but any gains in the account from investments remain tax-free permanently.
2. Start a Business
Launching a home-based business can provide you with a lot of opportunities to reduce your tax bill. The CRA lets you write off a wide range of expenses, such as:
- Home office expenses
- Business-related vehicle expenses
- Business-related supplies
If you go this route, hiring an accountant will help ensure you only deduct legitimate expenses.
3. Medical Expenses
If you paid out of pocket for certain kinds of medical expenses, you can get a tax credit for those. You can’t deduct all medical expenses, so you’ll need to sort through what applies and what doesn’t. The credit also only kicks in for amounts above a certain threshold, typically three percent of your annual income, times the applicable tax rate.
If you’re a hardcore DIY person even about your taxes, give yourself every possible advantage. Invest in a good piece of tax preparation software. These can help you ensure that your taxes are filed properly and help you find tax-reducing deductions or allowances.
5. Hire a Tax Pro
Another simple way of saving on taxes is for you to hire a professional for help with taxes. A good accountant can help you spot ways of reducing your taxes during tax preparation. Their knowledge of tax tips and tricks is one of the main reasons for hiring an accountant.
How to Save Money on Taxes? Plan
The answer to the question of how to save money on taxes is the same for most other problems: plan. You must create a financial plan that lets you contribute to an RRSP or TFSA. You must plan ahead to pay for an accountant.
If you want to start a business, you definitely need a plan for the business and tracking your expenses.
Looking for more personal finance or business finance tips? Check out the posts in our Lifestyle and Business sections.