Taxes are a part of life that many people try to forget about until April 30th, but saving money on taxes is a project that requires consistent attention. There are usually a few surprises that come along with the printing of new tax forms each year, so getting a jump on smart tax habits means taking a look at potential tax deductions a few months before April 30th comes around, so you don’t end up dipping into your emergency fund to pay off those taxes.
1. Focus on retirement planning
Far too many individuals reach their 40s and 50s without considering retirement funding, and making maximum payments into a registered retirement savings plan (RRSP) is important. These accounts are the easiest and automatic way to save money for retirement and lessen tax requirements. Even though it’s not an interesting way to spend money in one’s 20s, considering an early start on an RRSP is always a good idea.
2. Keep every receipt
The tax laws change every year as far as what items are deductible and why those purchases might offer a reduction in taxes paid. The only way to take care of those last minute or unexpected write- offs is to make sure that every receipt and purchase during the year is recorded and saved in some way. Storing a box somewhere in the home where all the receipts can be dropped during the year will mean that evidence of all purchases is easily located at tax time.
3. Create a rental in the home
An extraordinary number of expenses associated with a rental in the home are available for deduction off yearly taxes. Renting out a room is a great way to save money on taxes due to expenses such as minor repairs and maintenance associated with keeping the rental habitable. These repairs and maintenance issues would be required in a space whether it was being used as a rental or not, so there’s no reason not to try and get those expenses reduced on a tax bill.
4. Deductions from investments
Several deductions exist for Canadians who choose to invest their money in various accounts and purchases during the year, and it’s vital to keep track of each of these deductions. For many types of brokerage accounts, there are opportunities to deduct the amount of interest or fees paid during the year. It’s also possible to write off losses from capital gains losses experienced during the year.
5. Start a business
A business doesn’t need to be profitable, or a huge money- maker to save a person money on taxes. There are an incredible number of write- offs associated with starting a business. It’s possible to take part of the costs of driving a car, running a home office, and various utilities associated with that home office off a tax bill. If the business actually takes off, there are additional deductions likely possible from working under self- employment status.
Finding tax deductions is often best accomplished by paying extreme attention to detail and making sure that all records of all transactions during the year are stored somewhere so that when the day comes to fill out tax forms, a tax bill will be much lower.