More Tax Tactics
I often meet people who are self-employed or contract employees, who think they can write off EVERYTHING. Hey, self-employment isn’t an excuse for tax avoidance - for which you can go to jail, people. So I’m browsing around the internet when I come upon this article. I think it does a great job of explaining the whole write-off thing, and it’s pretty funny too. (What?! An accountant with a sense of humour! OMG
Here are some other things you may not know:
1. Even if you have no income, or no tax owing, you should file a tax return for two very good reasons. First, filing a return determines your eligibility for government programs such as the Canada Child Tax Benefit, GST/HST credit or any new tax rebates that may be announced during the year. Second, your return reports earned income, which - even if it is under the personal exemption amount — increases your future RRSP contribution room.
2. Childcare expenses have to be claimed by the lower income spouse. If you remarry or start a new common-law relationship late in the year and your partner doesn’t have an income, that would prevent you from deducting childcare costs.
3. If you have to travel more than 40 km to get medical treatment not available locally, you can claim your travel costs as medical expenses. Go more than 80 kilometres, you can also claim accommodation costs. You can either use receipts to make a claim for things like vehicle operating costs, or you can use the “simplified method,” which let’s you use a flat rate for meals and kilometres.
4. Buried in student loans? A non-refundable tax credit for student loan interest can be claimed by the student (regardless of who actually paid the loan). Unused interest amounts can be carried forward for 5 years, so if you don’t need to claim the interest because your taxes are already zero, save it to claim in a future year. To be eligible, the loan must be a federal or provincial student loan (so those bank lines of credit don’t count). If you’ve been talked into refinancing your federal or provincial student loans, you’ve kissed this tax credit goodbye. Of course, you may also be saving a ton on interest since the student loan system isn’t exactly the cheapest thing on the block.
5. If you have very little income this year - maybe you went on maternity leave, for example - you might want to forgo making your RRSP Home Buyer’s Plan repayment. Why? Well, if you’re not going to end up paying any tax anyway, then taking that repayment amount into income won’t hurt. Keep in mind, however, that the money you DON’T put back, can’t grow.
One more thing: Most people can’t tell a deduction from a tax credit. Here’s the diff:
- A tax deduction reduces your income. So if you claim an RRSP contribution of $10,000 then you’re income is reduced by $10K which means any tax you may have paid on that $10K is coming back.
- A non refundable tax credit reduces your taxes owing, so you won’t get extra money back if you have more tax credits than taxes owing.
BTW: a smart website - even mine – is no substitute for professional advice if you have anything but the most basic tax situation. If you’re using tax shelters, have a rental property, have stock options at work, are self-employed, have an incorporated business - or even a sole-proprietorship that you’ve purchased - or have employees or sub-contractors, you need to go see a tax expert.
April 10th, 2008 at 3:38 pm
If you expect a refund from your taxes, file as early as you can. If you can beat the rush, they might process your file sooner, so you might get your money sooner. So the sooner you get the money, the sooner you can pay back your debt and the less interest gets charged!
April 10th, 2008 at 6:22 pm
This past year I learned a valuable lesson in regards to charitable donations. I love to read and have always donate my books to the library for their annual book sale. The head librarian suggested that the books be sent to inventories and that what was not current enough to be shelved wold be returned to be sold at the book sale. To my delight I received a $385.00 charitable receipt. . . Whoo hoo . And last week I received another receipt for 2008 for a total $77.50 (so far) . I get to indulge in a couple of new paper backs a month, get an charitable donations tax break and help support my local library… All while following the budget.
April 10th, 2008 at 6:29 pm
I’m often amazed at how many people who should be able to do their own tax returns send their stuff to places like H&R Block, and how many people who should see a tax expert do their own returns. If we all know what we are capable to do and what we don’t know, Gail won’t be writing up this post!
April 10th, 2008 at 11:13 pm
Thank for the amusing article link. I am self-employed, and I just do my business to supplement our family income while the little ones are at school so there is not a whole lot of income generated, but not bad considering how flexible I have to be. Happily I have a friend that is a CGA, and once a yeat I make him a fine dinner, and slip him a bit of cash in exchange for him helping figure out our family taxes.
(I know I need to know more and will be checking out Revenue Canada’s site
April 11th, 2008 at 8:59 am
I didn’t know about claiming travel costs as part of medical expenses. Many of my family live in a rural area and have to travel well over 80 km to obtain medical treatment or get medical tests done. They can add it to their medical expenses they already know about claiming, ie prescriptions, glasses, etc. I think if an individual’s medical expenses are over $1,926 or 3% of their net income, it is worth claiming it on the income tax form. Keep in mind folks, that I get someone else to do my taxes so my understanding is limited. You are a fountain of information though, Gail, and give me great leads that I can follow up on. Thanks! This site gives me the kind of detailed information that the tv series can’t and I appreciate being able to come here and getting info from you and hearing from others! I have to catch your tv programs after 12 midnight so I am really behind this year in knowing what families you are working with. I miss those shows!
April 14th, 2008 at 9:44 am
Nothing replaces a good accountant if you are self employed. Ours is not “creative” what so ever and though at tax time he is not my favorite person and never brings good news and I cringe at the payments we need to make on both of our business’s, and I wish he could find a million and one deductions, real or imagined, I know he is right when he says… “come an audit, you will thank me for my LACK of “IMAGINATION”!:)
Some self employed are convinced they can write off everything, from the morning cup of coffee, to toilet paper ( because one client a year may come over to the house and then need to use the washroom) It’s amazing how silly some of their rational is. Most of the tax laws for business’s do make sense (even if I don’t like them) others still rub me the wrong way. For instance, my husband is an Electrical Contractor and the Master Electrican. He does the boss work and the labour as well. He does not have a uniform, working in basic construction grade pants, shirts. He also will sneak out wearing his only decent pair of jeans and better shirts, consequently he owns nothing that isn’t either permanently stained, riped or both. In my mind, his work clothing should be deductable but unless he wears a UNIFORM, purchased from a uniform company, it is not. I mean, added up he probably destroyes $1000 a year in clothing because of his job. I do understand the logic that if the clothing you are trying to deduct can be worn on a personal level too, it’s not allowable. Oh well!
I just have to shake my head when we run into someone who is an employee and how states how lucky we are that we can deduct EVERYTHING!!! HA, I just reply how I would trade all those WONDERFUL deductions… like 5% of the car and gas, for their Dental plan!!!!