Making tax mistakes will cost you thousands of dollars. To get your hard-earned money back, you need to avoid making these common tax mistakes.
1. Forget to claim your working income tax benefit (WITB).
If you are a low-income individual or family, you may be qualified to get this benefit. This benefit is refundable, which means that you can return thousands of dollars to your pocket. You need to apply for it when you are doing your income tax.
2. Claim your medical expense in the wrong way.
You should total your family members’ medical expenses and claim it on the lower-income spouse tax return, because that will give you more tax credits.
3. Waste your donation credit.
Your donations can be carried forward for up to 5 years. If you have no tax to pay this year, don’t claim this credit, so you can use it in another year. If your donation is more than $200, you get a high tax credit rate. Therefore, to maximize your tax credits, you should combine your and your spouse’s donations and claim them together.
4. Claim your capital cost allowance (CCA) incorrectly.
If you are a business owner or you have employment expenses, you can claim depreciation of your capital assets such as your vehicle, tools and equipment. You can choose to claim all, none or any amount in between. The CCA you don’t use this year will be available to you next year. To optimize the amount you should claim, you need to look at the big picture and do some calculations.
5. Fail to plan your income tax.
The key to saving your income tax is planning ahead. If you are employed, you should consider:
- Should you contribute to an RRSP?
- How much should you contribute to your RRSP to optimize your income tax?
- Should you use a Spousal RRSP?
If you are an incorporated business owner, you should consider:
- How much you should pay yourself?
- Salary vs. Dividend, what is the best way to pay yourself?
- Should you declare bonuses for your employees?
- Should you write off bad debt this year?
- Should you make a capital purchase this year?
Avoiding these common mistakes will get your hard-earned money back.