How Can You Save Money on Taxes?
If you have ever asked yourself that question, this guide is for you. With a bit of knowledge, you can maximize your refund or tax savings!
In fact, it’s no secret that you can lower taxable income with an RRSP contribution, but were you aware that you can keep TFSA even outside of Canada?
Although specific rules apply to particular sectors, we will focus on tax savings that apply to everyone in Canada.
Check them out below.
1. Registered Retirement Savings Plan
All Canadians can avail themselves of this kind of savings or investment account. It’s also good to know that RRSP contributions may be deducted from your earned income in a contribution year.
However, it’s best to keep in mind that contributions are allowed up to 18% of the earned income. Moreover, the amount was capped at $26,230 in 2018. You should probably only contribute if you have a marginal tax rate higher than the expected tax rate when you withdraw them.
You can also take advantage of your withdrawals by timing the withdrawals to save more on your taxes. You can make significant savings on taxes by withdrawing in a year of no or little income. This includes taking a gap year to pursue your other interests or travel.
Do you bring home a full-time income right now but expect minimal income in the future? If so, delay your withdrawals until then. Under the assumption that the total withdrawals are lower than the full-time income, the RRSP withdrawals will get taxed only at the marginal rate.
Aside from this, you can withdraw as much as the Basic Personal Amount in a year without income. This means that you don’t have to pay any taxes.
3. Employment Amount
Unless you’re self-employed, this tax credit is open to all employed people. In 2007, it was launched at $1,000. However, due to inflation, the amount has gone up to $1,195 by 2018.
This is non-refundable, so you get to save 15% of this or $179.25. If you use a tax program, you only have to input your income to receive the tax credit automatically.