One of the things I hate most in life is taxes… Yeah I know, I am a “numbers guy”, I work in a financial institution so I should not hate tax season. But the fact is that filing income tax is so boring I am whithering away while gathering my tax paperwork.
Now that the RRSP season has ended as of March 1st, it is time to gather all your paperwork to efile your income tax report. When is the deadline? End of April! So you better get to work fast 😉
The problem with income tax reporting is that nobody likes it (besides the accountants). And I guess this is how the Government makes so much money from us even though they offer many tax deductions and tax shelters. Most of us gather a few papers and quickly put them in an envelope for an accountant or we key it into tax filing software (remember my 2009 quicktax review?).
This is why you have to start gathering your stuff right away; in order to make sure you have everything and that you have gathered all the proof that will result in a tax credit or deduction.
I guess that you thought they were synonyms, right? Well before you get to the income tax deadline, you better read the rest of this post:
A Non-refundable tax credit is an amount that reduces your taxes owed. Therefore, you won’t get money back if you have more tax credits than taxes owed.
The tax credit is calculated as followed: amount claimed x lowest federal rate (province will also give an additional tax credit depending on where you live). Therefore, if you have spent $500 in your children’s activity (maximum allowed as tax credit in 2009), you will get a tax credit of $500 * 15% = $75.
So the non-refundable tax credit is a good thing but will always be worth less than a tax deduction if you make a lot of money.
Among the most popular tax credits you can find:
But for all the non-refundable tax credits, I suggest you go visit TaxTips.ca non-refundable tax credit table.
I really like the concept of tax deduction as you deduct the amount from your income. Which means that you are actually deducting taxes according to your marginal tax rate.
Therefore, if I take back my example with an amount of $500:
If you made an RRSP contribution of $500 and your marginal tax rate is 25% (on federal tax only), you will get $125 back. The great part is that considering most provinces, your combined (provincial and federal) marginal tax rate will be around 35%-40% if you are making over 50K. Then, your tax deduction could reach $200 at a 40% tax rate.
Here is a quick list of popular tax deductions:
Here’s is tax deduction quick list found at Taxtips.ca
As you can see, it is important to gather all your paperwork leading to your non-refundable tax credits and tax deductions before the income tax deadline of April 30th 2010. This could save you a lot of money!
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