Tax season is officially here.
If you’re dreading filing your taxes, the motivation you may need is the possibility of getting a bigger tax refund.
Withinflationand the skyrocketing cost of living, that extra cash from the government is needed now more than ever.
So, how do you increase your tax refund? By lowering your taxable income and reducing the taxes you owe to the government as much as possible.
This is where tax deductions and credits come in. However, with plenty of options, navigating what you should focus on may feel overwhelming.
Not to worry! Daily Hive spoke with Ed Rempel, a fee-for-service financial planner and tax accountant, to get the lowdown on the best ways to maximize your tax refund.
We’re keeping it real by keeping you updated on what you need to know this tax-filing season:
📆 Deadlines
💻 Filing options
💲 New benefits and credits, and more
➡️ https://t.co/Xzjd01SLie#CdnTax pic.twitter.com/qpCbbSUFPo— Canada Revenue Agency (@CanRevAgency) April 1, 2023
First off, what information should you have ready before filing your taxes?
Before you decide which tax deductions and credits you want to take advantage of, Rempel says you’ll need to make sure you have the receipts to support them.
Of course, you’ll need the usual T4 and T5 tax slips for your income, but the savings will come from deductions and credits, which probably won’t come with slips.
“It is worthwhile for you to collect all your expenses that are deductions and make sure you have receipts or something to support them,” said Rempel. “You should have receipts for donations and medical, but you will need to track some expenses like work-from-home expenses.”
He adds that it’s also helpful to keep track of your carryforward balances or deductions and credits from your last tax return that you didn’t claim.
“Quite a few can be claimed in future years,” he explained.
Tax credit vs tax deduction
Before we get into the nitty-gritty, knowing the difference between a tax credit and a deduction is helpful.
Simply put, deductions reduce how much of your income is taxable, while credits lower the tax you owe.
As for which will guarantee you a larger tax refund, Rempel says if your income is over $50,000 a year, tax deductions are your best friend.
“The key difference is that tax deductions reduce your tax based on your tax bracket, while tax credits reduce your tax based on the lowest tax bracket, which is about 20%,” he explained.
He gives the example of someone with an $80,000 annual income, who would be in the 30% tax bracket.
“A tax deduction of $10,000 reduces your tax by $3,000, while a tax credit of $10,000 reduces your tax by $2,000,” he said.
He adds that many government benefits are based on your taxable income. So, if you’re a parent using theCanada Child Benefit(CCB), you can get a larger refund if you have tax deductions.
The best deductions and credits to maximize your tax refund
Contribute to your RRSP
“The higher your income, the better it works,” said Rempel.
For example, if your income is over $162,000, you can contribute a maximum of $29,210 for 2022. Since you’re in the 45% tax bracket, you should get a tax refund of $13,000.
If you’re not sure how much to contribute to your RRSP to get the best bang for your buck, Rempel says it’s based on:
- RRSP contribution necessary to achieve your retirement goal
- Contributions necessary to maximize your lifetime RRSP room
- How much you can contribute to your current marginal tax bracket
- Your current RRSP deduction limit (which you can find outhere)
- Your available cash (or how much you could borrow)
ThisRRSP calculatorcan help you estimate how much your tax refund could be.
The deadline for RRSP contributions was March 1. If you forgot to contribute this year, make sure you flag it on your calendar for next year!
Claim moving expenses
If you got a new job last year and had to moveat least 40 km closer to your new workplace, you can deduct all of your moving costs.
Yes, that means you can claim the costs of flights, movers, selling real estate, getting out of a lease or mortgage, and temporary housing — which can add up to a lot.
Claim self-employment or work-from-home expenses
If you have your own business and you work from home, you can claimbusiness-use-of-home expenses. You can also claim car travel expenses, just make sure you keepthis infoon record.
If you’re not self-employed, but you still work from home for your job, you can still claim those expenses. Last year, eligible employees got up to atotal of $500 back if they worked from home for a maximum of 250 days.
There are no updates as of yet on that deductible this year.
Claim donations
If you’ve donated to a lot of causes this year, you could get some good karma. Rempel says you can get back between 40% to 50% of donations after the first $200 each year.
Claim childcare expenses and family benefits
You can claimchildcare expenses like daycares, summer camps, and childcare providers like nannies as deductibles.
As Rempel said, government benefits like the CCB are based on your taxable income, so claiming childcare expenses as a deduction could help you get a bigger refund.
It’s important to note that the CRA has been in hot water recently as many parents have taken to social media claiming that their child tax payments have been low or delayed.
Claim medical expenses
Don’t throw away your receipts and prescriptions for dental checkups, insulin pens, or if you’ve had to buy gluten-free products due to celiac disease! You could claim medical expenseslike these as non-refundable tax credits.
Deduct interest for borrowing to invest
“Borrowing to invest can be the best wealth-building strategy for the right people, done the right way, over the long term,” said Rempel.
Essentially, if you borrow a significant amount of money to make investments, the interest could be deductible and get you a huge refund.
Carryforward balances
Didn’t claim some tax deductions or credits from the 2021 tax year? No sweat.
Rempel says you can still claim a lot of them years after.
He gives the example of RRSP contributions that you couldn’t deduct last year. You can include that in your tax deductions this year for a bigger refund.
For university students, Rempel says tuition credits are limited by income, so you may have unused credits left to claim.
If you’re self-employed, you can only deduct work-from-home expenses based on youruse of the space to earn business income.
However, Rempel says you can carry that forward to claim the deduction against next year’s business income.
Charitable donations are limited to 75% of your income but can be carried forward for up to five years, according to the financial advisor.
Lastly, moving expenses can only be deducted based on your job income from that year, but if you started later in the year and didn’t earn enough, you can claim them the following year.
This year’s tax deadline is May 1. You have until June 15 to file on time if you’re self-employed.
- You might also like:
- CRA to introduce new automatic tax filing system next year
- The CRA says this is why so many parents aren't getting child tax payments
- Are you a newcomer intimidated by tax season? This CRA guide will make filing a breeze
