Checklist for Preparing Your 2020 Income Tax
While doing their income tax, individuals and businesses often forget to claim deductions that could really benefit them and that might significantly assist in reducing the amount of income tax that they ultimately pay.
If you are filing your personal income tax or your business income tax, you will need documentation to support the statements that you make in relation to your income tax submission. If you are or are responsible for any of the following, you will need to include this information on your income tax return- individuals affected by COVID-19; investors; families with students; family members with disabilities; individuals making gifts; individuals with changes to tax rates; and business owners and employers.
As an individual affected by COVID-19, you may have received income from one of the following Federal Government programs during 2020 – CERB, CESB, CRB, CRSB, CRCB. For any income that you received from these programs, you will be issued a T4A. Any CERB repayments on or before Dec. 31/20 should be reflected on the T4A and do not need to be reported separately on the tax return. It is important to note that no income tax was withheld from recipients of the CERB and CESB programs, while 10% was withheld from individuals receiving the CRB, CRSB, and the CRCB. This means that if you received CERB or CESB funding, you would owe a higher percentage of income tax on the income from these two programs. If you received income through the CRB, CRSB or the CRCB, the government withheld 10 % of your income for income tax purposes, but you may owe more than just 10% depending on your total income for 2020.
Investors should focus their attention on- tax-loss selling; gifts to family members; superficial loss; transfers and swaps, making RRSP contributions; delaying RRSP withdrawals under the Home Buyer’s Plan (HBP) and Lifelong Learning Plan (LLP); make TFSA contributions; take TFSA withdrawals; pay investment expenses; convert your RRSP to a RRIF by age 71; take advantage of lower RRIF minimum amounts; and use a prescribed rate loan to split investment income.
Families with students should be proactive by- making RESP contributions to take advantage of CESG; taking RESP withdrawals for students; and paying interest on student loans.
For family members with disabilities ensure that you- declare one-time COVID-19 payments to persons with disabilities; make renovations for home accessibility; contribute to a Registered Disability Savings Plan (RDSP); and pay family medical expenses.
If you made charitable donations in 2020- make sure that you claim those charitable donations with a tax receipt; eliminate the amount of capital gains tax you must pay by gifting publicly traded securities with accrued capital gains, as an “in kind” donation to a registered charity or foundation.
Do you think that you will be an individual with changes to your tax rates in 2021? If so, then you may wish to shift income and expenses between 2020 and 2021 where possible.
For business owners and employers consider- applying for the CERS, CEWS and/or TWS funding through the Federal Government and a Provincial Bridge Grant; performing corporate loss planning (use tax-free dividends, loss consolidation, and business transition planning); implementing income splitting; and using passive investment income to reduce corporate tax rate.
For additional customized info on how you too can take advantage of these income tax reduction techniques, please contact our Accounting Specialists at Accounting Firm Winnipeg Manitoba | Tax Accountants Winnipeg (keprofessionalaccounting.com) .
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