The tax season is not exactly upon us, but the more prudent taxpayers have already started getting their finances in order. If you are one of them, and you are not going to wait for the April deadline (unless the CRA moves it) and may file your taxes in Feb, make sure you claim all the tax breaks you are eligible for.
Many of the tax breaks you might qualify for you will be the same as 2019 taxes. But the pandemic might have qualified you for some new ones as well. In any case, every tax dollar you donât hand over to the CRA can go into your savings and can help you solidify your finances. There are two tax breaks that you should claim this year.
A new tax break
The Digital News Subscription Tax Credit (DNSTC) is a relatively new one, so you might not have considered it. You can claim up to $500 in qualifying expenses, which, at 15%, can help you save $75 from your tax bill. The tax break is available only for digital news subscriptions (not hard copy), and you can claim the expense together with your spouse or even a roommate.
An old tax break
The home office tax break has been around for a while, but only a relatively small proportion of taxpayers typically qualified for it. But in 2020, millions of people were forced to work from home for extended periods of time, making them eligible for this particular tax break.
Calculating home office expenses can be arduous for both the taxpayer and the CRA, since they have to reconcile a lot of records to verify if a taxpayer is only claiming eligible costs. To streamline the process, the CRA created a relatively straightforward âtemporary flat-rateâ method. Using this method, you can claim $2 for every day you worked from home for up to a total tax break of $400.
A future tax break
Whatever you save and grow in your TFSA now will, in a sense, be a tax break down the line. You can leverage your TFSA-based passive income or savings to manage your taxable income for any given year, and you might just fall into a lower bracket if you play your cards right. One stock that might be a good fit for your TFSA is the energy aristocrat Enbridge (TSX: ENB)(NYSE: ENB).
Enbridge is the largest company (by market cap) in the energy sector, and itâs also one of the oldest and most generous dividends. Even though 2020 was a rough year for energy (which made another aristocrat, Suncor, break its streak), Enbridge sustained and even grew its dividends. Its 7.3% yield is enough to start a passive income (if you have enough capital in the TFSA). You can also choose to reinvest the dividends to keep your stake in the company growing over time.
Foolish takeaway
Apart from general tax breaks that are available to almost everyone, there are several tax breaks that target specific taxpayer segments like parents, elderly, and married couples. Whatever your situation is, make sure you are aware of all the tax breaks you are eligible for, so you can save as much as you can from your tax bill and divert it to your savings and a safe financial future.
