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Tax-Saving Tips for Contractors: Pay Less and Keep More



We're sure you've wanted to learn how to lessen your tax legally but don't have the time to do research and find answers. That is why we are here to help you! We've done the research for you, and here is what we found.


Child Care Expense

There is a reasonable probability that you are spending a lot of money on daycare if you and your spouse both work. When a spouse or parent has a lower income, they must deduct these costs from their income on tax returns. Daycare, nursery, nanny, caretaker, and boarding school expenditures may all be claimed on your tax return. Ask for receipts and SIN numbers from these firms, too. Children under the age of seven may claim up to $8,000 a year, while children between the ages of seven and sixteen can claim  $5,000.


Maximize RRSP Contribution

An RRSP contribution of up to $29,210 or 18 percent of your annual income is permitted in 2022. When your RRSP matures, you'll have to pay taxes on the money you've saved in it. You may minimize your taxable income by converting it to an RRIF.


Spousal RRSP Contributions

You may get the most out of your tax savings with an RRSP by contributing to your spouse's account. Your spouse's or common-law partner's contribution space is unaffected by your contributions. If your spouse makes less money and has a lower tax rate than you, they wouldn't have enjoyed the same substantial tax benefit as you did. Your spouse will pay fewer taxes when they take their last distribution from their RRSP (or RRIF).


Expenses for Medical Care Can Be Recovered

Expenses that are not covered by your insurance may be deductible on your tax return. Tax deductions are available for medical expenses such as prostheses, insulin injections, hearing aids, contact lenses, and supplements. To claim some of them, you'll need a doctor's note.


Donate Smartly

Tax credits earned via charitable donations may lower your overall tax burden, both provincially and federally. If you have the documentation you gave to qualified organizations, you may claim tax credits for gifts made up to five years before. Donating appreciated securities directly is a wise decision. Your tax donation credit will be a little bigger, and you won't have to pay any capital gains tax.


Split Your Pension

Depending on how long you've been married, you and your spouse may be able to divide your CPP pension up to 50%. A pension split makes sense when one spouse is in a higher tax band and has a more significant income than the other. The spouse might reduce their taxable income by sharing the CPP at a higher tax rate.


Tax Credits Can Be Transferred to Your Spouse

Your spouse or cohabiting partner can transfer unused tax credits to you if their tax liability isn't large enough to completely wipe out the distinction. Tuition, books, and other educational costs are also included in this category: pension, disability, and aging-related fees. The high-earning spouse may benefit from this.


Contribute To RESP

Even though an RESP does not instantly lower your tax bill, it is a valuable financial tool. RESPs allow for a maximum contribution of $50,000, which works out to around $2,500 each year throughout the account's 20-year life. With the right investment vehicle, it may climb to $89,000. (such as one that provides an annual return of 5 percent ). You will also be eligible for $7,200 in government matching funds.


Home Office Tax Credit

Expenses for a home office might also be deductible for self-employed persons. If you work from home, you may be able to claim a part of your house's square footage on your tax return. For example, if it accounts for 15% of the total area, you may claim 15% off your energy, insurance, and mortgage interest payments. You may also claim some of the salaries you pay to the person who cleans your house.


Employ In-House

Hiring your kid or spouse to work for the company is an excellent approach to boost your business costs while being within the law's bounds. You can't pay a wage based on a fictitious job since CRA keeps an eye on it. If they are going to be a valuable asset to the company, they need to be adequately rewarded.


Incorporate

Small company incorporation (or even a side hustle) may provide significant tax benefits, but it isn't always a wise decision. The revenue from a small company might drive you into the highest tax band if it becomes too big, so you might as well incorporate it to save money on taxes. A careful cost-benefit analysis must be done before including your small firm, and it's not worth it if it costs more than the tax reduction you will get.


TFSA

You may cut your taxable income significantly by contributing money to a tax-free savings account (TFSA), even if your contributions aren't tax-deductible like in an RRSP. While withdrawing from your RRIF is taxed, you may use your TFSA to keep a lower tax rate by taking less than the minimum.


These awesome tips are from Wealth Awesome, a website run by Christopher Liew, who has worked in the financial sector as a CFA charter holder and finance professional in general. According to him, there is a lack of financial literacy in Canada, and mutual funds are among the most costly in the world. According to Liew, investors are still purchasing some of the most expensive mutual funds in the world.


 


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