Q – I am trying to figure out how to reduce my income taxes, so that I can invest more in my RRSP. Is there anything I can do now to reduce my 2011 tax bill, or is it too late? – Lisa R., Virgil, Ontario
A – There are a few ways that you might still be able to save money at tax time. To start, you need to know the difference between a “tax deduction” and a “tax credit.”
A “tax deduction” reduces your taxable income for the year. For example, a common tax deduction for Canadians is an RRSP contribution. Small business owners, those who are self-employed, or those who have a business on the side may also deduct business expenses.
A “tax credit,” on the other hand, is taken off the tax you owe, and is usually calculated as a percentage of an amount set by the government up to some pre-defined maximum. To claim these, you must fill in the appropriate boxes on your tax return form. Here are just a few common tax credits.
Children’s Activity Tax Credit. If you have a child enrolled in activities such as painting classes, soccer, hockey, or music lessons, you can claim up to $509 in eligible expenses and get up to $50.00 back for each child under 16 for 2011.
Healthy Homes Renovation Tax Credit. This credit is designed to assist with the cost of permanent home modifications that improve accessibility or help a senior be more functional or mobile at home. The credit could be worth up to $1,500 each year.
First-Time Homebuyer Credit. You can claim a personal amount of $5,000 in respect of the purchase of a qualifying first-time home. The tax savings generated after by the non-refundable tax credit will be $750 (that is, $5,000 x 15%).
You must meet eligibility requirements for tax credits, and each tax credit has different rules. There are many different types of tax credits available, so be sure to check with your tax specialist to determine if you qualify. – R.T.
Robyn Thompson, CFP, is the founder of Castlemark Wealth Management, a boutique financial advisory firm, specializing in customized financial, investment, insurance, and retirement planning. Phone 416-828-7159 or email today to firstname.lastname@example.org for a no-obligation, no-charge Castlemark Integrity Financial Planning consultation.
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