Tax season is well underway and I’ve been getting a few emails from people asking about their tax returns and how they can maximize their refund (or minimize the amount of taxes they owe).
Here are some basic tips that everyone can follow to make sure they’re getting the most for their money.
Did you make any donations in 2014? If so you’ll definitely want to gather all your receipts and claim them on your tax return. For couples it usually makes the most sense for the person with the higher income to make the claim – if you use a tax software program this should be done automatically for you.
If you were a first-time donor in 2014 you are eligible for the charitable donation super credit. This credit is an incentive for people to make charitable donations and gives you more of a credit than you’d normally be entitled to. Click here to read more about it.
Timing Your RRSP Deductions
The RRSP contribution deadline has already passed (March 2) but that doesn’t mean you can’t do some basic tax planning.
What many people don’t know about RRSP contributions is that you don’t have to claim the contributions you made. You can delay claiming them for a later year if it’s to your advantage.
This situation would make sense if you made a large RRSP contribution but had a lower income in 2014. If you expect your income to be significantly higher in 2015 it might make sense to delay claiming the deduction. The higher your income is, the higher your marginal tax rate – which means you get more bang for your buck when you can reduce that taxable income.
People who are paid on salary likely don’t see significant fluctuations in their income but those who own their own business or work on commissions may have income amounts that vary greatly from year to year.
If you made some RRSP contributions in 2014 but had a lower income than you are expecting for 2015, consider delaying some of your RRSP contributions to the following year so you can get the most bang for your tax buck.
As you probably know by now, there is an income splitting tax credit available for families for the 2014 tax year.
Related: The Basics of Income Splitting
Unfortunately the only ones who will really see a benefit from the tax credit are those who have a large difference in incomes between spouses. If both spouses earn the same amount there is no benefit for them, but families with one higher income earner and one lower income earner will see the greatest benefit.
The credit is so new that most tax books don’t have any available information but tax software programs such as Turbo Tax and UFile include the tax credit and it gets calculated automatically. This means most people using tax software to prepare their returns won’t have to calculate anything.
There are a couple points to note:
- The credit is capped at $2,000 and doesn’t change if there are more than one eligible children in the family
- There needs to be at least one child (under 18) in the family and the child must live with the parents
- Although the tax credit is for income splitting, the income isn’t actually “split” like pension income is – it is calculated using the difference in incomes between the spouses and no actual income gets transferred
- Single parents and couples with no children aren’t eligible for the credit
Related: The Ways We Overpay on Taxes