The holiday season is fast approaching and with it, tax season is not far behind. So with that in mind, here are some things to remember as we shop for gifts and celebrate the season.
Get rid of your credit card balances
We hear this advice year after year from the media and financial advisors, but it’s something Canadians aren’t particularly good at.
With interest rates at historic lows, and staying there far longer than most people had anticipated, Canadians are carrying more debt than ever, despite tighter lending standards. Recent numbers from TransUnion and Equifax show the average Canadian’s debt load is currently well over $25,000 not including mortgage debt.1 And with the holiday season, the urge to spend money we don’t have is even higher.
However, the relatively high rate of interest on most credit cards means that maintaining a balance generally results in far more money eventually being spent on that item than you originally thought, thanks to the power of compounding interest.
Your tax return is probably the last thing you really want to think about right now, but getting all the slips, receipts, and other documents together now, will help you make preparing your tax return when the time comes quicker and easier.
In addition, most people’s situation doesn’t alter much from year to year, so having a firm sense of where you stand right now compared to last year can be invaluable in planning for your tax return. Finding those medical expenses receipts, making last minute charitable donations, and more can all make a significant difference.
Think about your RRSPs too
While we’re talking about getting your documents organized, think about your RRSPs as well. Knowing where you stand earlier will give you a better sense of how RRSP contributions will affect your return and what refund you may receive. The sooner you have this information, the easier it will be to make any additional contributions you wish to make instead of trying to get it done at the last minute at the end of February.
Also, keep in mind that regardless of how much you contribute to RRSPs it may not be advantageous to claim the full amount, depending on your income and exact situation. For example, a person with enough non-refundable credits to bring their tax liability to zero already, without RRSP contributions, may wish to hold off on claiming some or all of those contributions. This allows them to save them for a future year where they made more income and would need the additional deduction.
While you’re at it…
Don’t forget to think about Registered Education Savings Plans (RESPs) for your kids. The costs of post-secondary education grows ever higher, and preparing for their future can be one of the best presents you can give them. (Look here for more information…)
And most importantly…
Relax and have fun. As much as we’d rather avoid thinking about taxes at this time of year, spending a little time thinking about them now should relieve a great deal of the stress later. It’s all designed to give you peace of mind and make your life easier, so you can better enjoy the season and the good times it brings with it. Happy Holidays!
1. Source: The Globe and Mail, August 28, 2013 “Debt by numbers: Troubling trends in Canadian consumer spending”