March 10, 2010, 5:21 am

Income Tax Deadline April 30th 2010: Tax Credits vs Tax deductions

by: The Financial Blogger    Category: Taxes
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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.

2009-2010 income tax deadline: April 30th 2010

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 ;-)

Don’t wait until the deadline; this could be costly

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.

Speaking of which; what is the difference between a tax credit and a tax 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:

Non-Refundable Tax Credit

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:

-         tax credit for donation

-         tax credit on home renovation

-         child amount tax credit

But for all the non-refundable tax credits, I suggest you go visit TaxTips.ca non-refundable tax credit table.

Tax deduction

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:

-         RRSP contribution

-         Interest expenses

-         Child care expenses

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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Comments

Speaking of taxes… as a winner of Quicktax, do you know when I should be receiving my free copy?

thanks for the infos!! Me too I hate tax fillings.

Quoting Benjamin Franklin: “In this world nothing is certain but death and taxes.” ;)

It’s a great library of information taxtips.ca!! Thanks!

As for me, I would deduct transportation service costs, eyeglass frames and lenses and contact lenses costs (not covered by my medical coverage at work) and Rental expenses.

I took advantage of the renovation tax credit and completed all bathroom renovations in my house by January 31,2010 so we would qualify for the credit.

I’m also in the process of getting ready to submit all my paperwork for tax purposes. it’s a bid of a pain in the a$$, but I’m eager to get it done and out of the way.

Nice thread.

@The Rat, great work!! I’m sure you are also looking forward your tx refund too (if any)!!!

@OneDay: Thanks. After doing the math and investing a bit more in RRSPs before the deadline, I’m hoping to either break-even or have a small return! :)