Most tax planning is straightforward if you own a home and contribute to RRSPs, TFSAs, and RESPs, as you’re already taking advantage of excellent tax sheltering. However, the top priority for everyone is how to boost their tax refunds in Canada.
Debt Reduction for Tax Refunds Strategies:
With the increase in interest rates, it’s a great opportunity to consider paying off outstanding obligations like mortgages, HELOCs, and personal lines of credit. This could prevent further loan carrying costs from rising and allow additional payments to reduce your investment funds. Furthermore, paying off high-interest debt, such as unpaid credit card bills, could potentially free up extra funds in your budget.
Building and Maintaining an Emergency Fund:
The pandemic has highlighted the importance of preparing for the unforeseen and the unpredictability of markets. In times of crisis, having several months’ worth of expenses saved up in an emergency fund can prevent you from hastily selling investments, which is unfavorable if markets are down, and you incur losses.
Invest in Registered Accounts:
If you haven’t maximized your contribution allowances yet, consider putting your tax refund into a Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), or Registered Education Savings Plan (RESP), which all provide unique tax benefits. For example, a TFSA exempts capital gains and investment income from taxes, an RRSP contribution earns a tax deduction that can be used towards the following year’s taxes, and a RESP qualifies for a government grant of 20%.
Enhance Your Home’s Energy Efficiency:
You can lower your gas, electricity, or oil expenses by using your tax refund to upgrade old, inefficient appliances, buy a more energy-efficient furnace, and install better insulation, windows, and doors to prevent air leakage. These savings could eventually be allocated towards investing.
By using your tax refund to replace outdated appliances, invest in a more energy-efficient furnace, and install better insulation, windows, and doors to prevent air leakage, you can reduce your gas, electricity, or oil expenses. As time goes by, these savings can be allocated towards investing.
Support a Worthy Cause:
If you aspire to help others as one of your financial objectives, you could consider donating your tax refund to a deserving organization during these challenging times. Contributions made to a recognized charity are eligible for a charitable tax credit that can be deducted from your 2022 taxable income.
Take Advantage of These Tips to Maximize Your Tax Refund:
Utilize the aforementioned tactics to optimize your tax refund. As interest rates increase, it’s a good time to focus on paying off debts, including high-interest debts that can help free up additional funds in your budget. In these difficult times, consider donating your tax refunds to a meaningful cause. If you encounter any difficulties, conduct thorough research or seek guidance from a professional.