Tax Tips for Every Stage of Life
There is only three weeks left until the tax filing deadline, yet I haven’t even started to put my own tax file together to send off to our accountant. You would think that a financial professional like myself would be all over this, but the truth is that I hate filing my taxes just as much as the rest of you.
But just because I am waiting until the last minute does not mean that I won’t file my taxes on time or won’t make sure that I am structuring things as efficiently as possible to pay less tax. And I certainly hope that the rest of you will do the same.
With the deadline a few weeks away, I thought it was worth one more tax related column to highlight some last-minute tax planning ideas that people in different stages of life should do in order to make a big difference:
Teenagers – Most teens don’t earn enough money to be required to pay income tax and they generally don’t have to file a tax return. But even though they don’t have to, they likely should.
The minimum earned income for 2019 to pay tax is $12,069 and most teenagers that work will likely earn under this amount. That income however does still create RRSP contribution room and even though the teen may not plan to contribute to an RRSP right away, filing a tax return will lock it in.
The room will accumulate and carry forward and their future self will be very thankful for the extra room to use for tax planning down the road.
College Students – There are similar benefits to filing a return for college students even if they also don’t need to do so. A college student will also have the $12,069 basic tax-free amount but they can additionally claim tuition payments and even transfer certain credit amounts over to their parents.
Those students who drawing out RESP funds and also working part time or in the summer need to be sure that they’re managing the RESP withdrawals properly to minimize any taxation issues.
Working Years – A poll was released the other day that showed a majority of Canadians still see a tax refund as a windfall instead of as their own money being paid back to them. The reality is that a tax refund is really just the result of poor tax planning.
While not much can be done for this year’s filing, those employees with fairly stable income should look at this year’s return and if they are getting a refund yet again, consider filing a T1213 form. This CRA form is used to “Request to Reduce Tax Deductions at Source” and once approved, can authorize your employer to reduce the amount of tax withheld at source for 2019.
Reducing the tax withheld at source will allow you to redeploy the extra money on a monthly basis directly into debt reduction or retirement savings.
Retirees or Soon to Retire – For anyone over age 65, make sure that you are claiming the pension income tax credit. Even if you’re still working, this credit will allow you to withdraw $2,000 per year from a “pension source” tax free.
If you don’t have a pension and aren’t ready to convert your RRSP account over to a RRIF, you can still convert a small portion of the RRSPs over so that you have enough to pull at least $2,000 out each year.
Benjamin Franklin once said that “In this world nothing can be said to be certain, except death and taxes”. So if you have to file your tax return anyways, you may as well file it on time and do it right!