When it comes to financial planning, I love to explore and share insights on the many ways to improve a person’s net worth. Depending on a person’s own circumstances, that could include how to save more money, pay off debt and even invest in real estate or the stock market.
Another topic worth exploring is strategies for paying less in taxes. Ideally, tax planning would be a year-round activity but that doesn’t necessarily work for everyone. When it comes to creating wealth and trying to save a little more in challenging times, it isn’t about doing one big thing right. It is more about doing a lot of little things right. Saving taxes and increasing your after-tax money is one fairly simple way you can weather the storm and help create long-term wealth.
Here are three tax-saving opportunities for you to consider:
1. Claim your family medical expenses
Medical expenses can add up very quickly. Pooling them as a family and having the person with the lower income claim them makes sense. Here’s why.
You can claim a federal non-refundable tax credit for eligible medical expenses that exceed the lower of 3% of your net income or $2,421 in 2021 (visit the CRA website for the latest information on medical expense credits), plus a corresponding provincial or territorial credit. Depending on your and your spouse’s income, you can consider claiming the total medical expenses for both of you on just one tax return, as that may help you reach the minimum threshold necessary to claim those expenses.
It is important to note the medical expense tax credit applies to medical expenses paid at any point during the 12 months ending within the calendar year (extended to 24 months if the individual died during the year). This time frame provides greater flexibility for your household depending on when a medical expense occurred, just make sure to keep all your receipts.
2. Claim your charitable donations
While you can’t give to every charity that asks, you may want to donate to charities that are aligned with your values. In addition to giving cash, you can also donate securities or other assets. You can even donate your time to a charity.
The good news is that both the federal and provincial governments provide attractive incentives to encourage you to make donations to your favourite charity. Those incentives can result in significant savings depending on where you live.
To encourage larger donations, the government provides a tax credit that increases with the size of your donation. On the first $200 cash donation, the federal government will give you a credit of 15%. When you add in provincial donation credits, your combined credit could be could be as high as 54%, once your total donation exceeds $200 in the calendar year. The charity wins and so do you.
Keep in mind that December 31 is the last day to donate to a charity and get a tax receipt for the year. For most charities, when you make an online donation, you’ll receive an immediate electronic tax receipt.
3. Contribute to a registered education savings plan (RESP)
Most people believe their children will likely require some form of post-secondary education. It could be a university degree, college certificate or a trade. Education is often considered to be the great equalizer where people from all socio-economic backgrounds can build a successful career and yet it remains expensive.
If your child or grandchild turned 15 this past year and has never benefitted from the Canada Education Savings Grant (CESG), you could be eligible for a CESG grant of 20% of your annual contributions up to an annual maximum payment of $500 or $1,000 if carry-forward room exists. To receive that grant, you must contribute $2,000 to an RESP by December 31, 2022 to create eligibility for 2023 and 2024. If you aren’t able to make your RESP contribution in 2022, you can make a contribution in 2023 to create room in 2024 and 2025.
Children today may want new clothing, the latest electronic gadget or new toys, but it’s safe to say that they need an education. That’s why, in my opinion, a RESP contribution towards your child’s education is truly the gift that keeps on giving.
Speaking to an accountant can help you uncover additional tax saving opportunities
These are just a few examples. It makes sense to chat with an accountant or whoever does your taxes to discuss opportunities for you and your family to save money. I always try to keep in mind the three “D’s”. Professionals will help you uncover ways to defer paying taxes and deduct from your current income while exploring ways to delay paying taxes by pushing the payments out further. It all comes down to putting more money in your pocket.