It pays to plan ahead and that includes your retirement savings. Many Canadians in the audience may have April 30 on their minds, since that is the deadline to submit your personal income tax return, but there is another deadline that you should keep in mind and this one is coming up much sooner.
If you were planning to invest in any RRSPs for the 2009 tax year, you’d better do it soon; the deadline is March 1.
Deferring Your Income Tax Payments
Also known simply as RSPs (retirement savings plans vs. registered retirement savings plans), these financial instruments aren’t really a tax shelter as much as they are a tax deferment plan. The assumption is that you won’t need as much income in your retirement years (nor will you likely be earning as much as during your regular adult working life), so you can withdraw from your RRSPs at a lower tax bracket at that time. For the current year, you can effectively reduce your net income and, thus, pay less income tax.
It’s good to see that the deadline is on March 1 and not on February 28, because the latter is a Sunday. Most major banks and other financial institutions are not open on weekends, nor do they process transactions on weekends. If the deadline was a Sunday, it means that if you were to buy an RRSP on a Saturday, it may not “go live” until the next business day. Even so, it’s probably a good idea to buy that RRSP today or tomorrow just in case.
How to Pay Less Income Tax
While we are on the subject of income tax, small business owners should also be mindful of any eligible expenses that they may have accrued over the course of 2009. These so-called tax write-offs can also effectively reduce your net income. You can write off any professional fees you paid and stationery supplies you purchased, as well as a percentage of your home office expenses, if applicable.
There are an array of other strategies you can employ to reduce the income taxes you have to pay and you can find some of these through the right tax software. Bear in mind that I am not an accountant, so it’s probably best to direct your questions to a certified tax professional.
My RRSP contribution limit is zero because I had zero earned income in 2009. 🙁
Aw, STBY.
To pay less income tax, just expatriate to a tax-free jurisdiction.
I know there aren’t that many of us that reach our RRSP limit, but for those of us that do, this limit should be raised. Lets encourage savings and reward those that do.