Are you overlooking these tax savings?
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:
- Childcare expense
- Child disability credit
- Tuition fees and textbooks
- Moving expenses for eduction (greater than 40km)
- Children’s fitness tax credit
- Caregiver deduction (dependent must be over 18)
- Medical expense tax credit
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.