Money & Career
6 ways to take advantage of tax benefits and save money when you're married
Money & Career
6 ways to take advantage of tax benefits and save money when you're married
Understanding how to take advantage of marital and common-law tax benefits shouldn't just happen every April as you scramble to file your taxes.
Being fully aware of what benefits are available to you and your spouse at any given time during the year ensures that you will receive the refund you're entitled to come tax time, therefore helping you save money.
Ready to make the most of your situation? Here are six common tax benefits for married or common-law partners.
1. Spousal RRSP contributions
If one partner has a much larger amount of money in an RRSP, it will mean that they will have to withdraw more upon retirement -- and pay more income tax at the time of withdrawal.
Putting some investment money into a lower-income spouse's RRSP will help balance your incomes when you retire, meaning that you will each pay income tax at a lower marginal tax rate. The spouse with the higher income will also get a better RRSP tax reduction at the time of investment, increasing your tax benefits as a couple.
2. The Home Buyers' Plan (HBP)
With the HBP, you are allowed to withdraw up to $25,000 from your RRSP to buy or build your first home. If you are buying property with your spouse, you can each withdraw up to $25,000, for a combined $50,000 toward your home. (Remember, though, that this amount does have to be paid back into your RRSP.)
Additionally, one person can claim the First-Time Home Buyers' Tax Credit, or you can share it come tax time.
3. The Lifelong Learning Plan (LLP)
Similar to the HBP, under the LLP, you can withdraw up to $20,000 from RRSPs to pay for training or education -- not only for yourself, but for your spouse or common-law partner as well. This is a great option to save money in comparison to taking out a loan as it helps you avoid high interest rates.
4. Tax breaks for students
If either you or your partner is attending a qualifying educational institution, an amount can be claimed on the student's income tax return for tuition, education and textbook expenses.
The original claim must be made by the student, but you unused amounts up to a maximum of $5,000 can be transferred to the student's spouse. The student can also carry forward any unused portions for use on the following year's tax return, but once the amount is carried forward, it can no longer be transferred to anyone.
5. Spousal credit
If you supported your partner at any time during the tax year, and his or her net income was less than $10,382, you can claim up to that specified amount on your federal tax return as a spousal or common-law partner credit. This credit can provide federal tax savings of up to $1,557, plus an additional amount for your provincial credit.
6. Medical expenses
Any qualifying medical expenses for both spouses should be combined and claimed on one person's tax return -- generally the partner with the lower taxable income.
It is important to note that filing as a couple is not optional. If you are married, or have a common-law partner that you have been living with for at least 12 consecutive months, you are obligated to file your taxes together as a couple.
Make sure you're making the most of your situation by understanding your tax situation and taking advantage of any potential tax benefits.
Krystal Yee is a marketing professional living in Vancouver. She writes about personal finance at Give Me Back My Five Bucks (givemebackmyfivebucks.com), and the Toronto Star's Moneyville.ca. You can reach her on Twitter (@krystalatwork).
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Being fully aware of what benefits are available to you and your spouse at any given time during the year ensures that you will receive the refund you're entitled to come tax time, therefore helping you save money.
Ready to make the most of your situation? Here are six common tax benefits for married or common-law partners.
1. Spousal RRSP contributions
If one partner has a much larger amount of money in an RRSP, it will mean that they will have to withdraw more upon retirement -- and pay more income tax at the time of withdrawal.
Putting some investment money into a lower-income spouse's RRSP will help balance your incomes when you retire, meaning that you will each pay income tax at a lower marginal tax rate. The spouse with the higher income will also get a better RRSP tax reduction at the time of investment, increasing your tax benefits as a couple.
2. The Home Buyers' Plan (HBP)
With the HBP, you are allowed to withdraw up to $25,000 from your RRSP to buy or build your first home. If you are buying property with your spouse, you can each withdraw up to $25,000, for a combined $50,000 toward your home. (Remember, though, that this amount does have to be paid back into your RRSP.)
Additionally, one person can claim the First-Time Home Buyers' Tax Credit, or you can share it come tax time.
3. The Lifelong Learning Plan (LLP)
Similar to the HBP, under the LLP, you can withdraw up to $20,000 from RRSPs to pay for training or education -- not only for yourself, but for your spouse or common-law partner as well. This is a great option to save money in comparison to taking out a loan as it helps you avoid high interest rates.
4. Tax breaks for students
If either you or your partner is attending a qualifying educational institution, an amount can be claimed on the student's income tax return for tuition, education and textbook expenses.
The original claim must be made by the student, but you unused amounts up to a maximum of $5,000 can be transferred to the student's spouse. The student can also carry forward any unused portions for use on the following year's tax return, but once the amount is carried forward, it can no longer be transferred to anyone.
5. Spousal credit
If you supported your partner at any time during the tax year, and his or her net income was less than $10,382, you can claim up to that specified amount on your federal tax return as a spousal or common-law partner credit. This credit can provide federal tax savings of up to $1,557, plus an additional amount for your provincial credit.
6. Medical expenses
Any qualifying medical expenses for both spouses should be combined and claimed on one person's tax return -- generally the partner with the lower taxable income.
It is important to note that filing as a couple is not optional. If you are married, or have a common-law partner that you have been living with for at least 12 consecutive months, you are obligated to file your taxes together as a couple.
Make sure you're making the most of your situation by understanding your tax situation and taking advantage of any potential tax benefits.
Krystal Yee is a marketing professional living in Vancouver. She writes about personal finance at Give Me Back My Five Bucks (givemebackmyfivebucks.com), and the Toronto Star's Moneyville.ca. You can reach her on Twitter (@krystalatwork).
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