Whether you do them yourself or use tax preparation services, there are alternatives to reduce your tax burden so it won’t grow too large before the payment due date on May 1, 2023. This is even more important in light of the record-high inflation rates and increasing cost of living this year. Additionally, search for any tax credits, rebates, or deductions that might help you recoup part of your expenses.
Use these tips to arrange your finances and be ready to file your taxes in spring.
1. Get Forms T4, T4A, and T4E All Together
Getting your T4, T4A, or T4E paperwork in order will need to be a part of preparing your tax return. These documents from the government will assist in calculating your annual income. If you choose to contribute to a registered pension plan throughout the year, your T4A will show the total amount of money you put away for your retirement during that period.
Employees get the T4, or Statement of Remuneration Paid, from their employers at the conclusion of each calendar year. It covers your income, deductions, and already paid taxes. The payers of additional employment-related sums issue the T4A tax slip.
2. Work From Home Expenses Due to COVID
Have you done any of your work from home this year? The costs associated with running a home office are still deductible. It was unnecessary to preserve receipts or get a signed T2200 form from the employer to deduct up to $400 in home costs from taxable income for qualifying employees who worked remotely in 2020. The administration has pledged to increase the permitted amount to $500 and to continue the simplified deduction through the 2022 tax year.
3. Deducting Interest Payments From Investments
Can you deduct the interest you spent on the money you borrowed to use for investments? You can apply for a loan to buy investments in unregistered accounts or a mortgage on a rental property. However, be aware that there are limitations to claiming these payments as deductions. Tax preparation services always know the ins and outs of these cases.
The majority of interest you pay on money you borrow for investments can be written off, but often only if you strive to turn a profit. This is according to the Canada Revenue Agency. You cannot recover the interest you paid if capital gains are the only returns your investment may generate. When you purchase land that simply has the potential to generate capital gains and does not provide rental income, for instance, interest may not be tax deductible.
4. Small Business Owner Tax Deductions
If you own a business, you may be able to deduct some of the following expenditures from your taxes. Having a reliable tracking system for your running costs is beneficial. Your personal tax return should include information about a sole proprietorship or your partnership interest, often on form T2125, Statement of Business, or Professional Activities. Although the CRA offers an excellent explanation, the statement gives a clear idea of the kinds of costs that qualify as business expenses.
5. Setting Aside the Money for Taxes When Self-Employed
If you work for yourself, no one withholds taxes from your paycheck; you must set aside money to pay your taxes. You should set aside 25% of your earnings for taxes to make sure you have enough saved up to cover your tax responsibility. Only your net income, which is your entire revenue less all your costs, is subject to taxation. On your tax return, look for line 104, which states Employment Income Not on a T4 slip. You must disclose your company revenue here.
