2022 Year-End Tax Planning Strategies for Individuals
Fall is around the corner and it’s the best time to get organized and assess what cost-saving actions you can take before the end of the year.
We’re here to ensure your tax filing experience is a breeze and ensure the hard-earned money you made is kept in your pocket. Let us share with you some of our year-end tax planning strategies.
If you need help with your taxes or you have a unique tax situation, please feel free to email us at info@eocpa.ca or book a free consultation with Liz here.
1. Contribute to Registered Retirement Savings Plan (RRSP)
RRSPs are a tax deferral mechanism. Contributions to an RRSP are deductible against your current income so you receive immediate tax relief. When it’s time for retirement and you go to withdraw the money, it’s likely to be taxed at a lower tax bracket as your earning potential has tapered off.
To maximize the benefits of the RRSP, you should contribute to it when you’re in a higher tax bracket and withdraw from it when you’re in a lower tax bracket. Contributing to an RRSP can significantly bring down your taxable income.
The deadline to contribute to your RRSP for the 2022 tax year is February 28, 2023.
Click here to find out more about the RRSP, deadlines, and contribution limits.
2. Contribute to Tax-Free Savings Account (TFSA)
TFSAs don’t provide up-front tax relief, but as your money accumulates the profits will be tax-free. You can use your TFSAs for investments like Guaranteed Investment Certificates (GICs), stocks, bonds, or mutual funds.
In 2022, the maximum amount you can contribute is $6,000 plus any unused contribution room from previous years. Click here to find out how the TFSA works.
RRSP vs TFSA Which is better?
Most people are in a higher tax bracket during their peak employment years. If this applies to you, investing in an RRSP is your best bet to take advantage of a reduced tax payable amount. If you’re saving for a vacation or a down payment on a home, a TFSA will allow you to contribute up to $6,000 this year (plus any additional past contribution room) in an investment account, free to withdraw at any time tax-free.
To summarize, it’s a good idea to contribute to both if possible. If you contribute to each account every year and invest the money, you’ll see a big difference in your taxes paid and retirement savings.
3. Donations
The maximum annual claim for charitable donations is 75% of your net income for the year. Any donations beyond that may be carried forward for five years.
Official tax receipts must support all charitable donation claims. Maximize the donation tax credit by claiming your and your spouse or partner‘s donations on one return.
4. Medical Expense Tax Credits
You can claim medical costs for yourself, your spouse or partner, and your dependent children paid in the year or in any 12-month period that ends in the year (as long as you have not claimed the expenses previously).
Either spouse or partner can claim the credit for the family. It may also be possible to claim a medical expense tax credit for medical costs you pay for other dependent relatives, such as elderly parents, grandparents, aunts or uncles.
Receipts must be kept in case the CRA asks to see them and must include the name of the person to whom the expense was paid.
5. Tuition Tax Credits
To be eligible for the tuition tax credit, the tuition must generally be paid to an educational institution in Canada or a university outside Canada and the total course fee must be higher than $100. A student enrolled at a university outside Canada may claim the tuition tax credit for either full or part-time attendance in a program leading to a certificate or degree.
The T2202 – Tuition and Enrolment Certificate is a tax form designed for all students who paid tuition fees for qualifying courses that they are eligible for a claim on their income tax return and is used to certify a student’s eligibility for their tuition, education, and textbook amounts.
Canada training credit - Effective for the 2020 and later taxation years, the credit assists eligible individuals who have either employment or business income to cover the cost of up to one-half of eligible tuition and fees associated with training. The portion of eligible tuition fees refunded through the Canada training credit reduces the amount that would otherwise qualify as an eligible expense for the tuition tax credit.
6. Child-Care Expenses
The deduction limit is $8,000 for each child under the age of seven at the end of the year, and $5,000 for those aged seven to 16, inclusive. And if the child is eligible for the disability tax credit (DTC), the limit is $11,000. The total deduction cannot exceed two-thirds of the claimant‘s earned income.
Make sure that all child-care payments for the year will be made by December 31. You will need to retain receipts supporting child-care expenses indicating the recipient‘s name and, where applicable, social insurance number.
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We hope you‘ve found this guide helpful in understanding your tax position today and getting you ready for the next tax season. It is our aim to get you ahead of the game as some of these ideas will require immediate action, while others require your year-round attention.
The potential tax credits listed above are the tax credits we usually encounter but there are many other tax credits depending on your situation. If you need help with your taxes or you have a unique tax situation, please feel free to email us at info@eocpa.ca or book a meeting with Liz here.
Talk soon,
Team EO CPA
Disclaimer: This article is for informational purposes and not intended as accounting or tax advice. Please contact us for an engagement to best assess your specific situation.
