Are you overlooking these tax savings?

Posted by on September 13, 2010 in Taxes

Earlier this summer there was a lot of bytes consumed in the blogsphere about a new tax savings strategy not previously available to the general public. The actual explanation of the strategy proved a little Palin-esque for many people’s liking and the story seems to have died a quiet death. Inevitably, in a few month’s time, there will be some other new and improved tax savings product pitched to the public.

While there is a time and place for certain types of tax savings products, the more fundamental issue is that most taxpayers do not claim tax deductions or tax credits which are readily available. For example, Time Magazine reported that more than 1/3 of all American taxpayers do not claim the mortgage-interest deduction. For a household making between $40,000- $75,000 a year, this is lost tax savings of approximately $542.00 a year; a not insignificant sum in penny pinching times.

The most overlooked tax deductions and tax credits tend to cluster around medical expenses and children/provision for dependents. For example, the following are some tax deductions or tax credits in connection with children and medical expenses available to Canadian taxpayers:

This does not include the Canada Child Tax Benefit which is a monthly allowance for eligible taxpayers (but only if you sign up). Generally, the range of tax deductions and tax credits available to taxpayer receiving employment income is relatively less than the self-employed. But, as the above non-exhaustive example shows, the government is encouraging us to have kids by providing numerous tax incentives.

For American taxpayers, here is a link to most overlooked tax deductions.

The key to all these  tax deductions or tax credits is good book-keeping/record retention. Rather than running this post during tax season, it is timely to remember to keep your invoices and receipts related to children as they tend to pile up this time of year.

Tax shelter do have their time and place. They work on the same risk-reward principle as investing so it is important to remember the larger the potential tax deduction (or the larger the product falls outside any existing and endorsed tax plan), the greater the risk of audit and the costs associated therein.

However, the larger point remains that tax shelter should only be restored to if all possible deductions and credits are claimed.

5 Comments on Are you overlooking these tax savings?

By Canadian Capitalist on September 13, 2010 at 3:36 pm

I agree with your point. First, claim all tax breaks you already qualify for. Then, take advantage of every possible tax breaks that are well established. It is only after all these avenues are exhausted should one even consider whether to participate in more risky tax schemes. Thanks for the mention!

By » Weekly blog roundup Canadian Business Blogs | Advice on Investment in Canada, Stock Market, Small Businesses Opportunities on September 13, 2010 at 5:36 pm

[...] Thicken My Wallet surveys overlooked tax savings. [...]

By Dr Dale Rathgeber on September 13, 2010 at 6:54 pm

Good post. I have a discussion in my blog about these tax shelter/scams. Sadly, if it seems too good to be true, it often is too good to be true, even if a legal opinion is attached touting the foolproofness of the scheme.

By Dd on September 13, 2010 at 9:21 pm

I am really bad at this–I should keep everything together and get brushed up on what is deductible.

Do you have a filing system you use?

By admin on September 14, 2010 at 1:25 pm

Dd- I’ll post on this next week.

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