Vancouver Accountants Share Their Top 5 Tax-Saving Strategies
Introduction
Taxes can be daunting for many individuals and businesses, but what if you could save money on your taxes? Vancouver accountants share their top 5 tax-saving strategies to help you keep more hard-earned money in your pocket.
Strategy 1: Maximize Retirement Contributions
RRSP and TFSA
One of the best ways to save on taxes is by maximizing your contributions to Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). RRSP contributions are tax-deductible, which can lower your taxable income and potentially put you in a lower tax bracket. TFSAs, on the other hand, allow you to save and invest your money tax-free so that you won't pay taxes on any growth or withdrawals from the account.
Spousal RRSP
If you're married or in a common-law relationship, consider contributing to a spousal RRSP. This allows the higher-income earner to contribute to the lower-income earner's RRSP, potentially lowering the couple's overall tax liability in retirement.
Strategy 2: Take Advantage of Tax Credits and Deductions
Home Office Expenses
With more people working from home than ever before, taking advantage of home office expense deductions is essential.
You may be eligible to claim a portion of your rent, mortgage interest, property taxes, utilities, and maintenance expenses as a deduction if you meet specific criteria for using your home as your principal place of work.
Childcare Expenses
Don't forget to claim childcare expenses on your tax return if you have children. This can include daycare, babysitting, and after-school care costs. Claiming these expenses can reduce your taxable income and save on taxes.
Strategy 3: Optimize Capital Gains and Losses
Tax-loss Harvesting
Tax-loss harvesting involves selling investments that have decreased in value to offset gains from other investments, thereby reducing your taxable capital gains. By strategically using tax-loss harvesting, you can minimize the tax burden you owe on your investment income.
Lifetime Capital Gains Exemption
The Lifetime Capital Gains Exemption (LCGE) allows you to shelter up to $883,384 (as of 2021) in capital gains on qualified small business corporation shares from tax-exempt bonds. If you own a small business, consult your accountant to determine if you're eligible for the LCGE and how to use it effectively.
Strategy 4: Income-Splitting Techniques
Family Loans
One way to save on tax reduction strategies is through income-splitting techniques like family loans. If one spouse earns significantly more than the other, they can lend money to the lower-income spouse at the prescribed interest rate set by the Canada Revenue Agency (CRA). The lower-income spouse can then invest the loaned funds, and any investment income generated will be taxed at their lower tax benefits rate.
Prescribed Rate Loan Strategy
Another income-splitting strategy is the prescribed rate loan strategy, which involves lending money to a family member at the CRA's prescribed interest rate. This strategy allows the borrower to invest the loaned funds, and any investment income generated will be taxed at the borrower's lower tax advantages rate. The lender must charge interest on the loan, but they can still benefit from the overall reduction in the family's paying taxes liability.
Strategy 5: Use Corporate Structures for Tax Efficiency
Small Business Deduction
The Small Business Deduction (SBD) can provide significant tax health savings account if you own a small business. The SBD allows Canadian-controlled private corporations (CCPCs) to pay a lower federal taxes rate on the first $500,000 active business income. Small business owners can keep more profits using the SBD to reinvest or grow their businesses.
Holding Companies
Using a holding company can also provide pay tax-saving benefits for business owners. Moving excess profits from an operating company to a holding company means you can defer capital gains taxes on investment income and potentially qualify for the Lifetime Capital Gains Exemption if you decide to sell your business.
Conclusion
By implementing these top 5 tax-saving strategies Vancouver accountants share, you can minimize tax liability and keep more of your hard-earned money. Don't forget to consult a professional accountant to ensure you take advantage of all the tax-saving opportunities available.
Frequently Asked Questions
