5 Income Tax Tips from the Trenches
It is the time of year when many accountants and tax preparers live, breathe, eat and sleep taxes (leaving very little time to write about them!). And while much of it is routine, there are numerous issues that arise, the treatment for which is not immediately apparent and can actually be quite interesting (perhaps more so to a tax nerd), some of which are compiled below:
Invest in RRSPs or Repay your Mortgage?
One of the most common questions asked by Canadian taxpayers is whether they should use their excess disposable income to invest in RRSPs or pay down their mortgage. Since contributions to an RRSP are made on a tax free basis, reduction in taxes payable can be substantial. Conversely, higher mortgage payments can result in significantly lower interest expense. As such, there several factors to consider when deciding which option is better:
What Happens When You Contribute Excess Amounts to your RRSP
Being able to contribute to an RRSP is one of the great tax saving strategies available to all Individual Canadian Taxpayers who generate “earned income” which is essentially income earned from employment (salaries) or self employment, (Passive income like dividends and interest is ineligible for consideration when calculating how much you can contribute to an RRSP). There are .unfortunately limits to how much you can contribute and Revenue Canada (CRA) actually imposes penalties on overcontributions to your RRSP.
Tax Tips: Medical Expenses Tax Credit
Canadian taxpayers are allowed to claim their medical expenses as a deduction subject to certain restrictions and limits. Luckily your root canal and eyeglasses are deductible, but unfortunately your nose job is no longer eligible to be included in your medical expenses (cosmetic surgery was made ineligible as of March 5, 2010) nor is a hot tub that you install in your home, even if prescribed by your doctor. Eligible medical expenses also have to reach a specific threshold before they can actually start reducing your taxes payable. Details, pertaining to the medical tax credit, to keep in mind prior to deducting medical expenses are discussed below:
RRSP Facts and Figures: Infographic
One of the most significant tax breaks available to Canadian taxpayers are contributions to retirement savings plans. As the contribution deadline approaches for 2010, I have compiled some facts and data into an infographic to provide some insight on how they work, and how we measure up to other Canadians: