Tax return season doesn't have to be a nightmare. Here are a couple of tips to help you make sure you make the most out of tax season.
Don't wave a red flag for the tax man. Drastic changes from previous years' tax returns and from the norm in your industry are likely to catch the eye of the Canada Revenue Agency. That's especially true in cases where your gross income rises or remains constant, but your taxable income drops.
Is the drop a result of your investment in a tax shelter or writing off losses on a new rental property? Make sure you have documentation to back it up. If you're self-employed and your profit margin suddenly plummets, be prepared for the tax collectors to take a much closer look at your expenses.
Ditto if travel expenses or promotion have risen a significant amount, such as from 30 percent overall to 40 percent. You may be asked for receipts, as well as details about why the expenses were necessary.
Give charity a share (or a few). Rather than cash, consider donating shares to your favorite non-profit, suggests Vancouver financial planner Adrienne Mastracci. "There is no capital gain reported by the individual who donates securities or bonds to a charity." We should highlight the fact that any cash donation is after-tax income, which is how you end up "saving" money.
Let's say ABC investment has done very well. It's worth $50,000 on the day you donate it to the United Way. Since you originally purchased ABC for $25,000, if you sell it, you will have to report a capital gain of $25,000, which would be added to your income.
The result: additional taxes of about $5,500 at the top tax rate. If you donate the stock instead, that $12,500 capital gain is exempt from tax and yet you get the entire $50,000 charitable contribution, saving you taxes of about $21,850 in British Columbia, for example.
The caveat: your broker has to physically transport the stock to the charity, so it could take time. Don't do it at the very last minute.
