As we draw nearer to doing our taxes for 2010, it is important for us to understand the difference between a tax deduction and a tax credit.
A tax deduction reduces your taxable income, and the actual amount of taxes you save depends upon your personal tax rate. If you are in a high tax bracket, a tax deduction can provide you with substantial tax savings, but if you are in a low tax bracket the savings will be lower. If you have no taxable income, a tax deduction does not benefit you at all.
A lot of people don’t realize that they can claim many of their medical expenses incurred throughout the year. Any time you fill a prescription, be sure to keep the receipt tucked away for income tax purposes in order to benefit from the tax credit.
Are all medical expenses eligible?
No, not all medical expenses are eligible. Examples of ineligible expenses include gym fees, blood pressure monitors, and organic food. For a more complete list, check out this Canada Revenue Agency (CRA) link.
You can decrease the amount of income tax you pay by donating money to registered charities. When you file your taxes, be sure to include all your official donation receipts received from the organizations in order to take advantage of the tax credit. Donating to charities is a meaningful way to decrease your taxes and to support a cause you are passionate about.
How do I know if a charity is registered?
If you are unsure if a specific charity is registered, you can search the listings on the Canada Revenue Agency (CRA) website.
The Home Renovation Tax Credit (HRTC) is a temporary program designed by the Canadian government to stimulate economic growth and help Canadians with home improvements.
The HRTC allows you to claim expenses incurred for home improvements dated after January 27, 2009, and before February 1. 2010. You can file the HRTC on your 2009 tax return. Keep your receipts and labour contracts filed away safely in case CRA needs to see them in the future.
The HRTC can help you to save up to $1350.00 on home improvements purchased before February 1, 2010. You still have a few weeks to buy your materials if you are planning a home improvement project for 2010 and you want to take advantage of the tax credit. Although you won’t be able to claim labor costs after February 1st, you will at least get the tax credit for a percentage of the cost of your materials. The nice thing is that you don’t have to have your renovations completed by February 1st, you just have to buy the materials before then.