Tax planning involves reviewing your finances with an eye to lowering your tax burden. You plan your finances out in accordance with what will save you the most money. There are many different strategies, and within each strategy, many different actions you can take. Proper tax planning can save you thousands of dollars. Here are some of the most common strategies.
Reduce income.
If you can put off having to pay taxes, it can help to do so. A common tax planning strategy is deferment through investing in a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA). This reduces your gross income, which is the taxable portion. Student loan interest payments also offset your tax burden. Investments in other places like the stock market and mutual funds can help, but consult with your tax planning professional first.
Shift income.
While income splitting can be controversial, there are ways to ethically take advantage of options for doing so. A spousal RRSP, trust fund, or similar can spread your income out and shift the tax burden. Tax planning that incorporates income splitting should be handled by a professional to ensure you are not abusing any loopholes accidentally.
Increase deductions and credits.
Deductions and credits are more tedious methods for reducing your tax burden, but there’s a plethora of options here. It’s possible to deduct travel expenses, home office expenses and more if planned carefully. You can also receive child credits, disability or old age credits. Getting into line item deductions and more can be daunting, so it’s best to consult with an accounting professional to ensure accurate representation and efficiency when using this method.
What all of these methods have in common is that they require a lot of forethought and expertise. Call KB Accounting today to discuss your own tax planning options.
