The end of the year is fast approaching, and that means that it’s time to consider what you can do to decrease your tax liability. Yes, you do need to pay taxes – but there is no reason to pay more than you have to. Look for ways to legally reduce what you owe to the government. Here are some tax breaks to consider:
Charitable Donations
One of the most obvious ways to reduce your tax liability is to make charitable donations. The CRA will provide you with a tax break of up to 17% for the first $200 you donate, and 29% on what you donate beyond that. You should realize, though, that there is a cap at 75% of your net income. (As always, there are some different rules for Ontario residents; the corresponding provincial break is 6.05% and 11.16%.) You can carry forward contributions for up to five years, so you don’t need to take all of it the year you made the contribution.
Childcare Expenses
You can take childcare expenses when the parents are working, or attending school. It is worth noting that if there is a two-spouse family, and only one spouse works, the same advantages aren’t available. In order to deduct childcare expenses, both spouses need to work (or be in school) or you need to be a single parent. You can take up to $7,000 for children under seven, and up to $4,000 for each child aged 7 to 16. Some of the eligible expenses include hockey school/lessons (of course), daycare, summer camp and boarding school.
Medical Expenses
Contrary to what many Americans believe, those of us in Canada do sometimes pay medical costs on their own. You can get a tax break for medical expenses that aren’t reimbursed. You should be aware, though, that there are certain restrictions: You can take 16% of expenses beyond the lesser of 3% of your net income, or $1,755. There is also the ability to get an advantage for medical expenses you pay on behalf of dependents.
Self-Employment Expenses
If you are self-employed, you can take some deductions. You can deduct costs related to the part of your home that is used for business purposes, including utilities. You can also claim deductions for business costs for supplies, travel and even some entertainment for clients. However, realize that you can’t use business expenses as losses to offset income form elsewhere.
Other Tax Breaks
You should also consider finding out more about the following tax breaks that you might be eligible for:
- Disability
- Pension
- Carry charges
- Moving
Before you take any tax breaks, however, it is important to understand whether or not you qualify for certain deductions and credits. It might be a good idea to consult a tax professional to help you determine the best course of action, and help you ensure that you are properly taking the deductions and credits.
This post was included in the Totally Money Carnival at Bucksome Boomer, and in Bank Nerd's Thanksgiving roundup, as well as the Carnival of Living Simplistically, and Tax Carnival #92 at Don't Mess with Taxes.
I realize you’re not a financial advisor, but was hoping you could answer some questions. I have been selling some possessions online and am wondering how to report it on my tax return as I found out I may be able to claim expenses for advertising and supplies. How do I report income that I earned from working or selling on my own?
If you can acknowledge this answer to my query, it would be sincerely appreciated.
Thanks,
Leah
In the U.S., you would use Schedule C to report your income and expenses if you are a sole proprietorship. In Canada, The CRA has a helpful page on reporting business income and expenses: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/rprtng/menu-eng.html A visit to a tax professional would not be amiss in helping you figure this out.
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