Tax Tips 2008

1. The most important tax tip is to try to write off expenses of your principal residence. As most of you know that you cannot write off any expenses for the primary residence because when you sell your house you do not pay capital gains taxes. One of the ways you can write off the expenses generally are by having a small business from home or renting a portion of your home. In my opinion every taxpayer should take advantage of this tax saving strategy. In order to successfully claim all the expenses one should be able to prove it as well. Never round up numbers and put big amounts into one category, if you do so you are inviting yourself for an audit.

2. You also want to invest where the returns are taxed at lower rate. Some incomes are taxable at taxpayer’s tax bracket and some have a tax saving mechanism attached to them. Dividends are taxed in a special way. Since the corporation has already paid it’s tax before giving out your profit by way of a dividend, taxpayers pay less tax on the dividend income than on an interest payment. Investments that generate capital gains are also good as capitals gains are taxed only on the 50%, so the other half of all the capital gains is tax free. capital gains are unique in another way. Unlike interest and dividend income, which are paid out and taxed each year, capital gains are sheltered from tax until the asset is sold.

3. Borrowing money to invest is good strategy as the interest cost can be written off as an expense. Always keep records of investment money borrowed separate from personal loans. Its makes it easier to claim interest expenses.,for example using your line of credit to invest in real estate property

4. Your contributions are tax deductible and grows tax free. Investing in RRSP is a controversial issue. There are examples where if you invested money outside of RRSP (such as in real estate) it is more beneficial. Saying that there are some advantages to investing in RRSP. RRSP money can be withdrawn tax free for buying your home first time and for long term education. Spousal RRSP’s are good to build up lower income spouse’s retirement and also if money is pulled out from the lower income spouses RRSP they are taxed at the lower bracket.

5. File a tax return for your children if they have income as it builds up their RRSP room which can be used later in life. If a return is not filed the potential room is lost. Young people and new immigrants sometimes do not file a tax return because their income is under the basic exemption. In this case it is very important to file a income tax return to get back provincial sales tax credits, GST credit, child tax benefit, Overpayment of CPP and EI, and any income tax withheld at source.

6. Avoid being Red Flagged by the tax department by filing your tax returns on time. Taxpayers sometimes start deducting large business expenses especially on advertising, meals and entertainment, travel and promotion. It is advisable to claim expenses for which you have receipts and do not try to claim in your personal expenses.

7. Always choose an aggressive tax specialist to help you with your income taxes and accounting. As you know rules are complex and an average person will miss lot of deductions and make errors. Remember your tax expert is an asset and not an expense.

8. List all your close family members who live with you. It becomes easy to account for Caregivers amount or infirm dependant amount or tuition fees transfers ect. Caregiver amount is often missed out by taxpayers.

9. Always present your last year’s taxes and notice of assessessment to your tax accountant. This helps in accounting for any carry forwards that could be used to reduce taxes or any errors made in prior returns which could be easily adjusted by filing an adjustment.

10. You should take full advantage of the child Tax Benefit. If you invest the child tax money in your child’s name you will not be taxed as it is considered child’s money. It is very important to keep child tax benefit money separate from other accounts.