Many Canadian citizens neglect to plan their taxes, despite the fact that doing so can often help their financial situation immensely, and reduce their tax liability.
One of the best ways for Canadians to secure their financial future, is to seek professional guidance from a personal tax accountant in Surrey, who will take away all of the guesswork and uncertainty, and devise a series of tailormade tax planning strategies for them.
Here are a few tax planning strategies for both Canadians, and Americans living in Canada:
Be sure to claim all deductions and credits you’re eligible for
Whether it’s student loan interest, medical expenses, childcare costs or tax credits such as Child Benefit, the first step in any tax planning strategy, is to claim each and every deduction and credit that may be applicable to you.
Make contributions to RRSPs
Registered Retirement Savings Plans, or RRSPs, are a tax planning tool proving popular among Canadians, in which the amount you contribute every year, can be deducted from your taxable income. An added benefit is that until you withdraw the funds in the RRSP, your investments can grow entirely tax-free.
Make the most of TFSAs
In tax-free savings accounts, or TFSAs, any returns you earn are entirely tax-free – including interest and capital gains – although the contributions you make to these accounts aren’t tax-deductible.
If you earn a higher income than the average Canadian, here are some tax planning strategies for you:
Try income-splitting
This is when a high-earning income is shared with others in the family who might be in a lower tax bracket, and is achieved through dividend splitting, RRSPs, and family trusts, among others.
As with all of these strategies, advice from a personal tax accountant can help you make better sense of them.
Use First-Time Buyers Credit
The purpose of this tax credit is to ease the financial burden many people experience when investing in their first home, and can reduce your tax liability significantly.
Make contributions to RESPs
Registered Education Savings Plans, or RESPs, help parents save for their child’s education in a tax-efficient way. You can boost your savings with governments grants, and while your contributions aren’t tax-deductible, any growth in investment within the plan, is considered tax-sheltered.
Here are some more advanced strategies for tax planning that you can talk through in further detail with your tax accountant:
Use IPPs
Individual Pension Plans can be used by business owners classed as high-earners, to boost their retirement savings while being able to take advantage of some hefty tax deductions. It’s worth noting, however, that while these plans can be well worth the effort, they are often tricky and costly to set up. To understand whether an IPP would be worth it for you, consult with a local tax accountant.
Take advantage of Life Insurance
Some life insurance policies can be used for estate planning, transfer of wealth, or to offer an income that’s tax-free in retirement, and although they are often seen as an expense, they can be an effective tax planning tool when used correctly.
Understand cross-border tax planning as a dual citizen
If you’re a dual citizen, or have ties to other countries, it’s crucial that you remain compliant with all relevant tax laws, and avoid double taxation, which can only be achieved with a sound understanding of cross-border tax planning. Again, guidance from an experienced personal tax accountant can help you ensure this.
Plan your estate meticulously
It’s possible to reduce the tax burden on any named heirs when estate planning, and with the help of a local CPA firm, you can put strategies in place such as gifting assets, creating trusts, and appointing beneficiaries, to do exactly that.
Unless you’re a tax professional yourself, there’s no substitute for the wisdom these experts possess, and with their help, you can plan your taxes effectively and significantly minimize your tax burden.