Top 5 Tips to Save on Taxes This Year
Most of us tend to get lost in the hustle and bustle of our day-to-day lives throughout the entire year, only pausing to think about taxes when it comes time to file in April. However, by that point, it’s often too late to fully capitalize on the myriad of tax-saving opportunities that are available. Minimizing the tax burden on your hard-earned income should be a consideration that happens year-round, rather than just during tax season. So what proactive steps can you take today to lower your next tax bill? Here are some thoughtful ideas to help get you started on this important journey.
1. Make the most of registered accounts.
For many, the biggest annual tax break comes from contributions to their Registered Retirement Savings Plan (RRSP). Every dollar you put into this account up until next March can be taken off your 2024 taxable income. The same is true for contributions to the First Home Savings Account (FHSA), although you can only claim contributions made through the end of the year. Withdrawals from an FHSA are also tax-free as long as it’s a qualifying withdrawal. Other tax-advantaged accounts such as Tax-Free Savings Accounts (TFSAs) and Registered Education Savings Plans (RESPs) don’t offer the same up-front savings on your 2024 return, but they do allow you to grow your investments tax-free. A financial advisor can help you sort out which registered accounts will work best for you.
2. Write off your losses.
No one likes to lose in the market, but if you hold assets in non-registered accounts – that is, outside of accounts like a TFSA or RRSP – and sell shares of a company at a loss, that loss may still provide some value to your portfolio. Why? Because part of the loss can be used to offset any capital gains taxes. In other words, if you need to pay $1,000 in tax after selling an investment, consider dumping a poorly performing asset for an equivalent loss. Then you won’t have to pay any tax at all. (You will have to properly document and declare the loss on your tax return.) If the loss is greater than realized gains in 2024, you can carry the net loss forward to offset future gains, and therefore save taxes in a future year, or carry it back up to three years to offset past gains and reduce taxes paid in a previous year.
3. Keep complete records.
One big reason people pay more tax than they should is because they don’t have the receipts they need to take advantage of a credit or deduction. Fortunately, keeping track of receipts has never been easier. There are several apps that let you take a picture of a bill or expense and quickly categorize that spending. We use Hubdoc and recommended it to all our clients. Also, keep track of any tax-related forms or slips you’ll need, such as your T4, which lists how much money your employer paid you during the year. (It usually comes in the mail from your workplace, or you may be able to access it online.) Keep things straight so that come tax time you’ll have everything you need to help you cut your tax bill.
4. Know your credits and deductions.
There is no shortage of tax credits and deductions to take advantage of: the former cut down the amount of tax you have to pay, while the latter reduce your taxable income, which could also result in a lower bill. Generally, you’ll find deductions and credits covering things like child care, caregiving for parents, spousal support, out-of-pocket medical expenses, adoption, education, disabilities and pensions – the list goes on.
There are some key ones to keep in mind, for instance, if you are self-employed or your employer allows you to work from home, you may be able to deduct home office expenses; ask your employer to provide a T2200 or T2200S form. You can also deduct a number of moving expenses if you’ve moved at least 40 kilometres closer to a new job or business. It’s a good idea to familiarize yourself with the list of deductions and credits you can claim, which you can see here.
5. Make your tax planning family-friendly.
As well, where possible, the lower-income-earning spouse could invest their earnings in a non-registered account, and the higher-income-earning spouse could use their earnings to cover household and family expenditures. The advantage of this approach is that income and capital gains from the non-registered account held by the lower-income-earning spouse will be taxed at their lower rate.
Takeaway
It’s hard to concentrate on taxes year-round when you have so much more to worry about, but making it part of your regular budgeting and bookkeeping can ultimately save you time, stress and money. And keep an eye out for tax changes and new deductions as they come into effect.