Want to save on your taxes? Think strategically

Call it the start-of-year scramble. Tax season. For many of us, doing our taxes is a chore best done quickly. It’s something we try to get through with a minimum of hassle and, hopefully, all of our i’s dotted and our t’s crossed.

This is an understandable sentiment, but also possibly a very costly one. So even as this tax season approaches its close, make sure you’re being strategic with your taxes and considering all of your options for both now and the coming year. The potential savings could be well worth the extra effort.

Give to charity the smart way

It’s common knowledge that you get a tax credit for charitable giving, but did you know that you get a higher tax credit for contributions beyond the first $200?

This is how it works—for the first $200 in charitable donations (the Canada Revenue Agency has a searchable list of registered charities), you receive a combined non-refundable tax credit of only 20.06 per cent (all figures based on the 2012 tax year). Anything over $200, by contrast, receives a much higher tax credit, currently 43.7 per cent. The more you claim over $200, the more you benefit.

How does strategy come into this? Simple: don’t claim your charitable giving every year. Charitable receipts can be carried forward for up to five years, so if you save them up and use them all at once, you’ll be able to catch the maximum amount possible in that higher tax credit bracket.

Here’s an example. Say you and your spouse donate $200 every year for five years. If you claim your $200 in donations in each of those years, you’ll only ever receive the lower-level tax credit. But if you save that $200 each year and claim the full $1,000 in your fifth year, now you’re getting 20.06 per cent on the first $200 and the maximum available tax credit on the remaining $800. The upshot? Big savings.

This is just one tip for getting a bigger break through your charitable contributions. Another strategy is to combine charitable receipts with your spouse, once again bumping you as high as possible over the $200 mark. You could also receive tax benefits for naming a charity in your will, donating life insurance or investments, or employing several other tax-saving strategies.

For more details on making the most of your charitable contributions, be sure to check with a financial advisor.

Maximize medical tax credits

On the surface, medical tax credits are fairly straightforward. If the total medical expenses for you or your dependents exceed either $2,108 or three per cent of your net income, whichever is lower, you’ll be able to claim those expenses and receive a tax credit. For information on which expenses are eligible, the CRA keeps a detailed list, as well as information on determining which dependents may qualify.

Like charitable giving, however, there is also a strategic element to claiming your expenses. When filing your taxes, you can claim medical expenses in any 12-month period that ends in the current tax year. So if you’re doing your taxes for 2012, for example, you could claim the period from June 15, 2011 to June 15, 2012. Alternatively, you could claim the regular January to December calendar year, or anything in between.

The advantage of this flexibility is that you can pick the 12-month period in which you had the most medical expenses, increasing the claimable amount or perhaps bumping you up over the three percent minimum and thus making you eligible in the first place. If you simply go with the calendar year, you could miss out.

Knowing this 12-month rule, another good strategy is to cluster medical expenses together as much as possible. While this may fly in the face of instinct (most of us would prefer to space out our major expenses), it can be a good tax-saving tactic.

Turn a negative into a positive (or at least less of a negative) with tax loss selling

Nobody likes to lose money on investments. But there can be one silver lining when that tech or resource stock takes a beating: potential tax savings.

When you sell a non-registered investment at a profit, you usually have to pay capital gains tax. At the other end of the scale, when you sell an investment at a loss, that’s a capital loss, which you can then use to offset your capital gains (current, past or future gains – within certain limits) and bring your tax balance back closer to zero. Knowing this basic trick, you could consider selling a depreciated non-registered investment before year-end to save you plenty on your taxes.

But what if you would ultimately rather hang onto your investment, thinking that it will eventually rebound?

Repurchasing an identical product catches you in rules that disallow the loss if you bought or sold an identical investment within 30 days in any account, even in accounts belonging to someone related to you, like a trust you control or your spouse’s account. These rules prevent you from simply selling at a loss to capture the tax benefit, then re-buying and keeping the investment you wanted to keep in the first place.

There is a potential way around this, however: sell at a loss, then reinvest in a similar but not identical product. For example, sell a non-registered international mutual fund, use the cash from the sale to make a Tax Free Savings Account (TFSA) contribution, then buy a similar but not identical mutual fund in the TFSA. You get the capital loss and, even better, the TFSA investment can now grow tax free. Win-win.

Always remember, though, that you are not allowed to reinvest in an identical product and claim the capital loss.

Talk to an advisor about the best strategies for you

These are just a few of the many strategies out there that could save you a bundle when tax time comes around. The larger point is that by taking your time and being strategic with your taxes (and seeking experienced, professional help), both during tax season and throughout the year, you could end up well ahead of the game.

For advice on investing wisely and being strategic with your taxes, visit a local

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