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8 tax breaks you may be missing
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goldengirlfinance.ca
Serving a slice of income to the government is a bit like having an unwelcome guest at the dinner table — one who grabs a second helping of pie before you even sit down to dessert. Unfortunately, this is one guest who'll show up uninvited each and every year.
But rather than dread the taxman's arrival, it's time to get shrewd, smart and serious about tax deductions. Because while CRA (Canada Revenue Agency) justifiably aims to collect the minimum amount of taxes you owe, it'll also quite happily accept any extra amount you may inadvertently (and unnecessarily) pay. Consider some of the things that taxpayers typically overlook - and the deductions and credits that are often left on the table.
The truth about tax credits
According to Alan Rowell, a tax specialist and President of The Accounting Place, the federal government has "one heck of a PR department" when it comes to promoting tax credits. This can mean some big letdowns for taxpayers. Here's why...
A tax deduction reduces the amount of taxable income a filer will have for the year. So, for example, if you earn $60,000 and contribute $5,000 to your RRSP (you are doing this, right?), you'll only be liable for taxes on $55,000 of your income. This can add up to a tax refund. So far, so good. [More: Find the money you didn't even know you lost: A little known fact about CRA ]
Tax credits are where things get a little tricky, because while a $500 tax credit sounds like a sweet deal, it actually only amounts to about $75 in cash (say, what?!). This is because tax credits work by reducing the tax you owe, which is calculated as the tax credit ($500) times the lowest marginal tax rate (in 2011, 15 percent).
Of course, this isn't to say you should forget about tax credits - just don't expect them to work as much magic as some of the hype may lead you to believe.
Deductions, credits and cash, oh my!
Now, here's the good news: according to Rowell, there is a lot of room for average people to reduce their taxable income using expenses they're already paying. So start saving your receipts and get ready to dig into these deductions and credits…
1) Medical expenses
Cosmetic procedures aside, many medical expenses are deductible. The list of expenses that qualify is a long one, and it includes many things you may have paid for in the past year - think prescription drugs, pre- and post-natal treatment, and dental care. You can check out the list of qualifying expenses - and find out if you're eligible to claim them - at the Canada Revenue Agency website.
2) Employment expenses
If you have a long and gruelling commute to work every day you might feel like you're owed something for that. No such luck. But you may be able to lighten your tax load by deducting other job-related expenses. Your Blackberry may just be one of them — as long as you're using it (mostly) for work. [More: Fees: Your investment portfolio's silent killer]
3) Public transit
If you're going green and using an unlimited travel pass for a commuter train, bus, streetcar, subway or ferry to get around, you can claim the amount you spent on these passes. This is a tax credit, so it's no free ride, but if you're spending $100 per month on bus passes, you can claim a $1,200 credit and get $180 off your tax bill. Think of it as a little government karma in exchange for the occasional armpit in your face.
4) Safety deposit boxes
Birth certificates, marriage certificates, important receipts...perhaps if you're lucky, even a little bling. These are things you might keep secure in a safety deposit box at your local bank. This ultra-secure mini-vault can be rented for a nominal fee, and if you use it to manage your investments, you can deduct it from your taxable income. Why this is deductible is a bit of a mystery (but then, we don't like to ask too many questions where free money is concerned).
5) University tuition
If you're paying out-of-pocket to educate that clever little 'chip off the old block', be ready for a fight to settle who gets the tax break. If your son or daughter is still living it up in your basement, the deduction can be deferred until he or she (finally!) lands that first job and will have the income that'll allow for the use of it. That is, if you don't claim it first…
6) Student loan interest charges
A college major often includes a minor in debt. It's a major downer, with a minor upside: the interest on student loans is tax deductible. [More: Keep more of what you earn: tax planning tips and advice]
7) Charitable donations
Canada Revenue Agency's tax credit for charitable donations means you can give and receive, but not just any cause will do. If you want to deduct, you must donate to a registered charity.
8) Tax planning fees
Tapping into an expert's advice can be a great way to hold on to more of your hard-earned money. Besides tax filing services, the fees for this advice are tax deductible (perhaps the government's way of saying we could all use a little help — hint, hint). Once you've filed your taxes for 2011, sit down with an advisor and find out what you should be doing now to ensure you don't have to pay as much tax later.
Save those receipts!
The government demands a helping of your income every year, but that doesn't mean you have to just hand it over without a second thought. Keep your liability lean by staying on top of expenses that are eligible for tax deductions or credits. By serving Canada Revenue Agency a heaping portion of receipts, you may just get to keep a bigger piece of the pie…for yourself. [More: Make that tax refund pay: Tips for using your tax refund wisely]
GoldenGirlFinance.ca is a free personal finance and education site for women.
Nothing contained herein is intended to provide personalized financial, legal or tax advice. Before implementing any financial strategy, you should obtain information and advice from your financial, legal and/or tax advisers who are fully aware of your individual circumstances.
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