Enjoy These Employee Tax Breaks
Do you have a job that requires you to do your hair every two weeks or so? You might want to consider finding a less expensive stylist, as you cannot deduct the expense from your taxes even though it is related to your employment. It does not end there. For example, you also cannot deduct the cost of special clothes or shoes that are necessary for some jobs. Luckily, however, there are still a few ways you can lower your 2010 taxes.
The first step is to be sure you take the Canada Employment Tax Credit. Everyone with employment income can take this credit, which is aimed at helping offset some of the costs incurred because of a job. For the 2010 tax year, the maximum credit is $1,044.
Other ways to save on taxes:
Claim transportation costs
You can claim the Public Transit Tax Credit for yourself, spouse or common-law partner and children who are under the age of 19 at the end of the year.
Take education credits
If your employer does not reimburse you for post-secondary courses related to your employment, you can claim the Education Tax Credit. Alternatively, ask your employer to pay for the courses directly rather than reimburse you.
Defer tax on bonuses
Have you received bonus? If you get a bonus, ask your employer to transfer it to your Registered Retirement Savings Plan (RRSP). Employers can do this without withholding any tax. You will have to include the bonus on your tax return, but you will offset the tax affect with the RRSP contribution. This option works only if you have unused contribution room.
If you want to make the transfer yourself, take the after-tax bonus and invest it in your RRSP. You will get a tax refund for the contribution that you can also put into the plan.
Another option is to ask your employer to delay paying and transferring the bonus until 2011, when you will have new contribution room.
Pay interest on loans
If you took out a low-interest loan from your employer, you will owe taxes on an imputed value of interest as an employment benefit. Make sure you pay interest on or before Jan. 30, 2011. This will lower the taxable interest benefit you owe for 2010.
Reduce business vehicle benefits
You must pay taxes on the calculated value of the taxable benefit of having access to a company automobile. The benefit takes two forms: a fixed standby charge and operating expenses. You can reduce the operating cost benefit by reimbursing your employer for some or all of the expense for the personal use portion of the costs. You can claim automobile expenses if you use your own vehicle for business.
Claim expenses on conditions of employment
If your employer requires you to work from home more than half the time in 2010, you can deduct certain home office costs, including a reasonable percentage of your rent, utilities, home repairs and maintenance.
Calculations are based on the square footage of the home and must be prorated based on the percentage used for business purposes. If the space is not used exclusively for work, it must be further prorated based on the amount of time it is used for personal use. You cannot use the expenses to create or increase a loss, but you can carry forward costs that exceed employment income.
To claim these deductions, your employer must sign CRA Form T2200 Declaration of Conditions of Employment to prove that the expenses were part of your work requirements.
You can claim GST rebates for any sales tax included in employment expenses you deducted. It will become more important to ensure you don’t miss this tax break. Prior to July1, 2010 the rebate was 5%, however it has since risen to 13%. Not something you want to miss out on.
Transfer retiring allowances to an RRSP
You can avoid the withholding tax on a retiring allowance, or severance pay, by having it directly deposited into your RRSP, up to the deductible amount.
Some of these strategies are complex and require advice from your tax accountant, who may also come up with other federal and provincial tax-savings ideas.