It’s that time of year when you should be considering last minute steps to optimize your 2019 income tax return before the April 30, 2020, deadline (June 15 for self-employed individuals).
To help you on your way, Koroll & Company has listed some common tax credits and tips on how to maximize their effect on your tax owing.
Donation Tax Credit
In Canada, the Donation Tax Credit is a two-level credit. This means that the percentage received as a credit increases as your donation amount increases.
Looking at the federal tax credit, for the first $200 you donate to eligible charities, you will receive a 15% non-refundable tax credit. For any amount over this initial $200 donation, you will receive a 29% tax credit (for taxpayers with a taxable income of $210,371 this increases to 33%).
To ensure you make the most of your tax credit, consider these five tax planning tips.
- If you have little to no tax owing this year, consider carrying your donations forward. This can be done for up to 5 years and gives you the opportunity to stack donations so that you can take advantage of the increased credit for amounts over $200.
- Have only one spouse claim the credit for donations made by both of you. This will allow you to maximize the donation, to again take advantage of the two-level credit.
- Have the lower-income spouse claim donations. This may result in them getting a tax refund.
- If you donate to US charities, remember that they can only be claimed on a Canadian return if the donations were made to prescribe university, unless you have US income to apply the credit to.
- If you have stocks or mutual funds with unrealized gains, consider donating them to eliminate the taxable capital gains.
Medical Tax Credit
To help offset your medical expenses paid out of pocket without reimbursement, there is a tax credit, which can help optimize your tax planning strategy.
There is no general rule that can be followed for determining the eligibility of a medical expense. To find out whether an expense is eligible, head to the Canada Revenue Agency (CRA) website.
Once you have determined which of your medical expenses qualify, it is time to determine your tax credit. The rule of thumb, when claiming eligible medical expenses, any amount over the lesser of 3% of your income OR $2,352 (in 2019) can be claimed for the medical expense tax credit.
To ensure you make the most of your tax credit, consider these three tax planning tips:
- Combine your household medical expenses, including those incurred by you, your spouse and your dependents into one claim by an individual spouse to optimize the credit.
- Have the spouse with the lower income claim the expenses to further maximize the credit, as they will have a lower threshold.
- If you had costly medical expenses at the end of 2018 that were not claimed on your 2018 tax return, consider choosing a 12-month period (ending anytime in 2019) that encompasses those expenses.
To ensure you are maximizing your tax position for 2019, contact us today.
