In an odd way, perhaps to some readers, I enjoy doing our taxes. I enjoy the computations and permutations that come with optimizing our tax return and deciphering our convoluted tax laws. I also find it a humbling experience, messing up sometimes and figuring out what I don’t know every year – making improvements for the following year. As with most things in life experience is the best teacher and you don’t learn a few things until you fall flat on your face a few times – doing your own taxes are no exception.
Today’s post will share a few tax considerations that have crossed my mind so far this tax season. Maybe you’re thinking about the same things?
- Have we contributed enough to our RRSP accounts this year, to avoid any additional taxes?
- Should we bother with an RRSP loan to maximize our RRSP contribution room? We’ve never done this before, with interest rates dirt-low maybe this is the year we try?
- How are we going to spend the RRSP-generated refund? Reinvest the money back into the RRSP accounts? Pay down our mortgage? These are our best options in 2014 I think.
- Why haven’t our T5s arrived yet? I need these.
- I can claim small business-at-home expenses to offset any blog income earned in 2013. Have I thought of everything? I need to review that tax guide again.
- When should I file my return? I’m looking at the end of March, if I get all receipts on time.
Any tax thoughts running through your mind already?
I actually enjoy doing our taxes, too. I haven’t gotten my T4 yet, so I can’t even begin to file them, and I’m still waiting on a few investment statements..I expect that we’ll owe, but not much.
I suppose you could always put a bit of money into your RRSP, to optimize your taxes?
I just filed my return yesterday. I’ve never finished in February before but this year I’m just glad to have it done. This is our first year in our new home so I think I was anxious to see how things would play out. It went much better than I expected.
Wow, that’s fast. Good on you to get it done though, I figure I’m about one month away from filing…still waiting for forms and such.
Being an accountant – I don’t think it is odd at all to enjoy taxes! When we do our taxes my main thoughts are how we can minimize our taxes and maximize our refund. The bank offered an RRSP loan at 4% – I declined. Likely next year though when both our marginal rates are slightly higher. Perhaps interest rates will be a bit lower then as well
That’s good, the professionally trained and DIY accountants have company then! I know we can get more money back if we put more $$ into RRSP, but with competing priorities and our desire to also have some fun money to spend, I just can’t see ourselves getting a loan this year.
I think we’re going to get over $1,000 back this year for sure, maybe more. A big tax refund actually isn’t a good thing; not good tax planning. Do you agree Dan?
Hey Mark, I will go with the typical accountant answer and say: it depends. It depends on 2 things: marginal tax rates and timing. Example: in my case a loan doesnt make sense because my marginal tax rate will increase in the next 1-5 years. If the goal is to reduce taxes (ie. pay taxes at the lowest marginal rate) then I’d want to hold off. An RRSP loan would make more sense for someone who is very close to retirement and has a lot of cont. room and pays taxes at a high marginal rate, but will pay at a much lower rate upon retirement due to a decrease in income. The loan could be used to reduce their taxable income while their marginal rate is still high
As far as the refund itself: a big tax refund can be beneficial if it’s used to lower taxes (ie. put right back into RRSP), pay down consumer debt (if any) or pay down the mortgage. If it’s just used for fun money then no, this won’t help your tax situation unfortunately 🙂
Hope that makes sense…..if not email me and I can explain further
Given today’s low interest rates, an RRSP loan may make sense for:
1) an investor very close to retirement with a large contribution room,
2) an investor who is way behind in contribution room and they know their salary will increase substantially in 2014, and
3) an investor who is way behind in contribution room and intends to use the RRSP-generated refund to accelerate their savings.
The condition for all these is, the investor pays off the loan quickly.
I have a post coming up Dan, all about what to do with the RRSP refund and how reinvesting the RRSP refund makes the most “cents”. Maxing out TFSA is another good option, as is paying down debt but if you spend the RRSP-refund, you’re really hurting yourself I think. Thanks for the great comment.