PWL Capital March 27, 2015 Personal Wealth Starting Out 10 Tax Tips for Young Professionals As tax season is fast approaching, it is important to start gathering your information to complete your returns. For single, young professionals, here are a few of the most common tax savings opportunities: 1. Tuition Carryforward If you recently graduated from a post-secondary institution, you can use any leftover tuition carryforward to reduce your taxes. You have to use it against all taxable income and cannot save any for future years if you have enough income to use the whole amount. If you took courses to further your education or certification courses, these might also be eligible to claim against your income. Review CRA’s information on this or contact a CRA associate to see if your fees are eligible. 2. Deduct Interest from student loans No one likes student loans, but the interest from federal or provincial student loans can reduce your taxes. You will receive a 15% tax credit on the interest you paid during the tax year or in any of the five preceding years (if not already claimed). 3. RRSP Contributions If you’ve contributed to an RRSP, make sure you don’t forget to include those contributions in your tax return. RRSP contributions reduce your net income, so you have a lower taxable income. If you’re in a lower tax bracket, you also have the option to carry forward your contribution to use in years when you are earning more money. Be sure to look at the tradeoffs of adding your tax refund to your RRSP and having it able to grow tax free (until you take it out in retirement or under the home buyers plan) sooner compared to getting a larger tax break when you’re in a higher tax bracket. Tax refunds as a result of contributing to the RRSP should not be considered a windfall and instead should be invested in the RRSP. 4. Charitable Donation Tax Credit If you’ve contributed to a registered charity, you will receive a tax receipt which you can use to reduce your taxes owing. You will receive a tax credit of 15% on the first $200 donated and 29% on excess amounts. You can carry forward donations for up to 5 years if you don’t want to use them in the current year. There is also the First-Time Donor’s Super Credit of 25% for first-time donations (not exceeding $1,000). 5. Medical expenses If you don’t have a health plan with your employer or you have large expenses that aren’t fully covered, you might be able to use medical expenses to reduce your taxes. The tax credit of 15% is on the amounts above 3% of your income or $2,171 (whichever is less). You can select a 12-month period ending in the year you are completing your tax return, to maximize your expenses. Just make sure you don’t claim the same expense twice. 6. Transit Pass Credit If you take public transportation to work and buy weekly or monthly passes, you can claim a non-refundable credit. Make sure you keep all your passes though in case you’re audited. You cannot claim individual transit trips on your tax return and you need four consecutive weekly passes to qualify. 7. Moving expenses If you have relocated for a new job or education, you can claim some of your moving expenses, as long as your new residence is 40km closer to work/educational institution than your previous home. What’s included? Moving and travelling expenses, meals and temporary accommodation, breaking your lease, having utilities connected and/or disconnected, real estate commissions and legal fees if you sold your home, to name a few. Mortgage interest, property taxes, insurance premiums and costs associated with a vacant former residence (to a maximum of $5,000) are also deductible. Expenses are deductible only from employment or business income earned at the new location and can be carried forward to another year. 8. First-Time Home Buyers’ Tax Credit If you recently purchased your first home, you can claim a credit of $5,000. The rules to qualify are similar to those under the Home Buyers’ Plan. 9. Ontario Energy and Property Tax Credit You may be able to receive a tax credit if you paid rent or property taxes for your principal residence in 2014. There is also an additional credit for those living in Northern Ontario as well as low income earners to help with sales taxes; these combine to make the Ontario Trillium Benefit. You can calculate an estimate of how much you will receive here. 10. Stop loaning the government money for free! If you find you are constantly getting tax refunds from the government, you can complete a T1213 form to get your employer to reduce the taxes withheld on your income. Tax refunds are just money that you have overpaid to the government throughout the year. A cautionary note: be careful that you don’t reduce it too much (especially if you used credits that you won’t receive in the future: like tuition carryforward, moving expenses, student loan interest, etc.) since you don’t want to get hit with a big tax bill you’re not expecting. These are just some of the common tax credits/deductions that young professionals should be aware of so that they aren’t paying more tax than they need to. Grant Thornton’s tax planning guide is a great resource for those interested in learning more about taxes. Finally, if you’ve got tax slips as a result of investments (even high interest savings accounts), it might be worth contributing to a TFSA to reduce taxes further. Share: Facebook Twitter LinkedIn Email
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