Do you need help preparing your tax return this year? It's not easy to know who to trust with this task. My neighbours, Gord and Becky, approached a local tax preparer for help. They found this guy through an online search. When they arrived at his office, he was engaged in an arm-wrestling match with one of his clients. A little strange, but okay, cut the guy some slack. It was when he started introducing Gord and Becky to the pens on his desk, by name, that they decided to find a different preparer.
Using a tax preparer may be exactly the right approach for you, but this shouldn't replace taking a healthy interest in what your tax preparer is doing on your return, including the types of deductions, credits and strategies you should be using to save tax dollars. This week, and next, I want to share some tax preparation tips that could save you thousands. Make sure your tax preparer considers these.
Families report a home sale
I've mentioned before that, new for 2016, you've got to report the sale of a principal residence on Schedule 3 of your tax return. You might also have to file Form T2091 if you owned more than one property at the same time and you'll be designating the property you sold as your principal residence for certain, but not all, years that you owned the property. The penalties are steep ($100 a month, up to $8,000) if you fail to report the sale of your home.
File a tax return for your kids
If your kids have earned any income, make sure they file a tax return. Now, your kids won't pay any tax if their taxable income is below the basic personal amount ($11,474 for 2016), but filing a return will create registered retirement-savings plan (RRSP) contribution room, which they can use later when they graduate and are working full time. Further, if your child will be 19 or older some time in 2017, they may be entitled to a GST/HST credit, which could mean cash in their pocket of up to $276 this year.
Claim certain credits on one return
Make sure you report all donations on the tax return of one spouse. You'll save tax since the tax relief for donations increases once donations exceed $200. As for medical expenses, be sure to claim them on the tax return of the lower-income spouse. You'll save tax because you're only entitled to claim medical expenses once they exceed 3 per cent of income, or $2,237 (for 2016), whichever is less.
Transfer credits to a family member
You can transfer the following credits to your spouse if you don't need the credits to reduce your taxes to zero: Age, pension, disability, family caregiver, tuition, education and textbook-tax credits. And if you're a student, you can transfer up to $5,000 of your tuition and education amounts to a parent or grandparent if you don't need the credits to reduce your taxes to zero.
Claim credits if you cared for family
If you were providing in-home care to your senior parents or grandparents in 2016, or to physically or mentally infirm family members (adults or children), you may be entitled to one or more of the following credits: the caregiver credit, the infirm dependant credit and the family caregiver credit. When filing your tax return next year, these three credits will be replaced by the new Canada caregiver credit announced in last week's federal budget.
Seniors claim home accessibility costs
If you were 65 or older at the end of 2016, or eligible for the disability tax credit, you may be entitled to claim a credit for costs incurred to improve the accessibility of, or your mobility within, your home. The credit can be claimed on up to $10,000 of eligible costs.
Split pension income
If you received eligible pension income in 2016 (sorry, but Canada Pension Plan benefits don't qualify) you may be able to report up to one half of that income on your spouse's tax return. This income splitting will save you tax, particularly if you're both able to claim the pension credit.
Claim the age credit
If you're 65 or older, this credit could save you up to $1,068 in federal tax for 2016. The credit is reduced for seniors with incomes over $35,927 and disappears when income reaches $83,427. Any unused age amount can be transferred to a spouse.
Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author and founder of WaterStreet Family Offices.