Tax time: Take control of your finances
Planning an annual reunion with the tax man can feel a bit like making an appointment with the dentist - a painful but necessary rendezvous. Fortunately, filing your taxes doesn't have to be all doom and gloom.
In this CreditCards.com Q&A, Myron Knodel, director of tax and estate planning at Investors Group in Toronto, explains how filing your taxes properly can save you money and help you get a better handle on your retirement savings and credit card habits.
CreditCards.com: How can proper tax planning save you money?
Myron Knodel: [Canada's] tax system is structured to allow you to arrange your finances in a way that, with proper planning, you'll be able to minimize taxes over the course of a lifetime, even in retirement. For example, it makes good tax sense to structure your investment portfolio so that your highest taxable income investments are held within registered, tax-free sheltered products such as RRSPs (registered retirement savings plan) or TFSAs (tax-free savings account). On the other hand, investments with preferred tax treatment, such as capital gains or dividend income, are the types of income that you want to have earned outside your registered plan.
CreditCards.com: What are the dangers of last-minute tax planning?
Knodel: If you snooze, you will lose. The most common danger of last-minute tax planning is that tax credits or deductions will be missed. It is possible to get your return amended, but if you missed the claim on the original filing, tracking source documents may be more difficult and generally involves more time and expense.
Last-minute planning can also result in missed opportunities. You can't go back and say that the $500 of income you generated outside the TFSA should have been within the TFSA. Nor can you make an RRSP contribution retroactive.
Credit Cards.com: What impact can an individual's credit card debt have on tax planning?
Knodel: Having high credit card debt limits your ability to contribute to registered savings plans that allow you to save money tax-free. It may also limit your ability to borrow for investment purposes and your ability to restructure your financing in order to obtain tax deductibility of interest income.
CreditCards.com: What are some good sources for finding out more about recent changes in tax credits?
A great place for free, credible information is the Canada Revenue website "What's new for 2011."
Your tax preparer can also help you, but it's important to tell them everything that has been happening -- financially or otherwise. You may not know the full extent of expenses that you may be eligible to claim.
Most recent Card Fundamentals Stories
- Money, credit and debt lessons for kids of all ages -- Here's how you can teach finance lessons to your kids at ever age - from two to 32 (and beyond) ...
- How to build your credit score from scratch -- Here's why you might not have a credit score, how to build it - and how to keep it high ...
- What's hiding in the fine print? -- It's tempting to skim or skip the fine print, but it holds important information that you should know before you accept it ...