Tuesday, March 20, 2012

Be an early bird and keep more of what you earn

It’s a little late to practice early tax preparation this year – but make it your practice for next year and you will keep more of what you earn.  That’s because early tax prep and planning pays off in many ways. Here’s one: If you use the services of a tax preparer, by being better organized, you’ll likely reduce your costs for tax prep because it’ll take less time to prepare your taxes and better organization will make it easier for your tax preparer to do his/her best.  Complete and logically organized tax information makes it much easier to identify and take full advantage of all your tax deductions.

Here’s how to get an early – and more profitable – start on next year’s tax savings:
  1. Check and review last year’s return to ensure you won’t miss out on any deductions and credits in the current year.  Look at your carryforwards – your unused Retirement Savings Plan (RSP) and Tax-Free Saving Account (TFSA) contribution room -- and do your best to fill it up fast to potentially reduce your taxes while enhancing your eventual retirement income.
  2. Get organized by setting up a simple file system and separating your information by type – income, deductions, credits, and so on -- your tax tasks will be much more manageable.
  3. Keep track of all your expenses and retain receipts even though you don’t necessarily have to submit them with your return.  Don’t forget moving expenses, accounting fees, investment management fees and the like.
  4. Keep more of your paycheque by reducing payroll tax deductions.  When you get a refund cheque it means you’ve paid the government too much during the year, providing them with a tax-free loan and reducing the amount of money in your hands that you can invest during the year.  If you expect a fat refund next year, apply to your employer to reduce the amount of tax deducted from your paycheque.
  5. Make your tax payments on time if you’re self-employed and required to pay tax instalments during the year.  You’ll avoid interest and penalties.
  6. Perform a check-up on your financial health by reviewing your overall financial plan.  It’s easier to measure your results against objectives when every aspect of your financial life is laid out before you.
  7. Be super prepared by disciplining yourself to track all of your tax expenditures for the entire year – and it’s a good bet you’ll save even more.
  8. Do it yourself … or not. A professional tax preparer does cost money but consider the amount you can save in taxes and anxiety. For instance, if there is a dispute, your preparer can go to bat for you with the Canada Revenue Agency (CRA).
And here is one tax-saving strategy you shouldn’t overlook: Be sure to talk to your professional advisor to ensure you take full advantage of every tax–reducing opportunity available to you.

Monday, March 5, 2012

TFSA time – can’t touch this!!!

Uh, oh – you somehow missed the February 29th deadline for RRSP contributions on your 2011 tax return. What to do now to save on taxes and help achieve your retirement and other financial goals?  Easy – TFSA yourself.  There’s no deadline with a Tax-Free Savings Account (TFSA), it’s a great place to invest your anticipated tax refund, and it’s a tremendously flexible way to achieve tax-free savings growth.  Here’s how it works:
  • With TFSA eligible investments, you put your money in and you get your money out at any time for any purpose, tax-free.  You can invest in your TFSA eligible investments any time you want, up to your maximum contribution level.
  • The current maximum TFSA contribution is $5,000 per person, per year. This means that beginning on January 1, 2012, you were able to contribute another $5,000 to your investments held within a TFSA in addition to any amounts carried forward from your 2011 limit and any withdrawals made in 2011
  • You can make a gift to your spouse to make a TFSA contribution and transfer your TFSA assets to your spouse upon death.
  • With investments held within a RRSP, you get a tax deduction for your contributions but all withdrawals are taxable.  With TFSA - eligible investments, there is no tax deduction for your contributions but you do not pay tax on investment growth or withdrawals.  All TFSA investment earnings are totally tax-free and will not trigger clawbacks on federal tax credits or benefits programs such as the Guaranteed Income Supplement, Old Age Security Benefits, Age Credit, GST Tax Credit or Canada Child Tax Benefit.
  • You must be at least 18 years of age to open a TFSA, but there is no maximum age restriction and there is no limit on how much contribution room you can carry forward – fill it up any time you want.
TFSAs – can’t touch this!!! Well, actually you can and that’s what makes TFSAs such a flexible investment choice:
  • Say you need $15,000 for a down payment on a vacation property.  Just make a $15,000 tax-free withdrawal from your TFSA eligible investments.
  • You can re-contribute the $15,000 after January 1 of the year following the withdrawal without affecting your other eligible contribution room.
  • If you had taken that $15,000 out of your RRSP eligible investments, you would have needed to withdraw up to $27,800 to pay taxes (assuming a 46 per cent marginal rate) and come up with the $15,000 needed for your down payment – and you would have lost that RRSP contribution room.
Deadlines, schmedlines – a TFSA can work for you any time of the year.  Ask your professional advisor about how to maximize your TFSA … and all your other investment strategies.