HOW TO GIVE YOURSELF A RAISE IN 2010 Part2: Reduce Tax Withholdings at Source

Are you taking control of the first dollar you earn, keeping it in your hands the longest, before the tax department gets hold of it? If so, good for you–you are in the minority of those who will pull ahead in 2010 and build more sustainable wealth.

Most Canadians helplessly and with resignation, overpay their taxes every two weeks when their employers withhold personal income taxes remittances. The good news?  You can stop those bad financial habits! Options are available to reduce taxes paid at source for most people. You just have to make an effort to know the tax credits and deductions you are entitled to—don’t glaze over, this is important–and begin filing of a series of what I call “sister forms” used to reduce source deductions.

To put more of the first dollar you earn into your own pocket, sooner, here are four common forms to get to know before the end of the year to really make a difference in your cash flow:

1. The federal and provincial TD1, Personal Tax Credits Return, upon which tax credits such as the Basic Personal Amount ($10382 in 2010), spousal amount, amount for eligible dependant (equivalent-to-spouse), the child amount ($2101 for each child born in 1993 or later), the age amount, pension income amount, tuition, education and textbook amounts, disability amount, caregiver amount, amounts transferred from spouse or dependant and deductions for living in a prescribed northern zone. Make sure you complete this accurately if any of the above will be claimed on your tax return in 2010.
2. The T1213, Request to Reduce Tax Deductions at Source, mentioned below, which takes into account the tax benefits resulting from year round RRSP deductions, child care expenses, support payments, employment expenses on Form T777, carrying charges and other tax reductions like charitable donations, significant medical expenses, rental losses and so forth. That makes year end a very good time to do some tax planning in advance for 2010. If you understand the time value of money, and can budget your spending and savings, Form T1213 can ensure more of the first dollar goes to the right place—your pocket instead of the government’s.
3. The TDIX, Statement of Commission Income and Expenses for Payroll Tax Deductions, which will take into account expenses commission sales employees have in earning their commissions. These employees will deduct last year’s commission sales expenses calculated on Form T777 or this year’s estimated commissions from their salaries plus commissions to have tax deducted only on the net amount. It is really surprising how few people actually use this form.
4. The TD1-IN Determination of Exemption of an Indian’s Employment Income, which allows employers to exempt employment income from income tax deductions at source altogether in the following circumstances:  when the employee performs at least 90% of the employment duties on a reserve, both the employer and the employee reside on the reserve or in situations where the employee performs more than 50% of the employment duties on the reserve and the employee or the employer resides on the reserve. Finally if the employee’s duties are connect the employer’s non-commercial activities carried on exclusively for the benefit of Indians who reside on the reserve source deductions will be waived if the employer is an Indian band, tribal council or Indian organization controlled by one or more such bands or reserves.

Remember:  it’s your legal right and duty to pay only the correct amount of tax. When you begin your tax and financial planning for 2010 now—starting with paying only the correct amount of income tax instalments or withholdings–you can indeed make the moves to pull ahead and win financially.

Make it your mantra to keep more of every first dollar earned starting January 1, 2010. Happy New Year!

Evelyn Jacks is President of The Knowledge Bureau and the author of three new books available now from www.knowledgebureau.com: Essential Tax Facts 2010, Master Your Taxes and Make Sure It’s Deductible.

Link to Bio: http://www.knowledgebureau.com/Faculty.asp?tab=Meet&ID=1



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