Nobody likes to pay taxes. Even people who vote for higher taxes cringe when they’re forced to pay their fair share.
Most people react to high taxes just like you’d expect. They do everything legal to bring their tax bill down, doing things like taking advantage of every possible write-off, intentionally minimizing their income, or making charitable contributions.
There’s nothing wrong with taking advantage of tax loopholes. They exist for a reason. But some people take it too far and will gladly spend $1 to save 20 cents in tax.
I’m a big fan of the pareto principle when it comes to taxes. One or two smart moves can make a huge amount of difference. Smaller moves won’t pack the same punch.
The easiest move the average person can make to minimize taxes is to make an RRSP contribution. $5,000 invested inside of an RRSP can easily translate into $1,000 or $1,500 in tax savings immediately, depending on your tax bracket. The larger the investment, the bigger the savings.
There’s a couple of things to consider, however. You must look at your contribution room and tax rate. It’s silly to use up contribution room during a year when your income is lower. It’s better to save it for subsequent years. There are also big penalties to over contributing.
And remember that RRSP contributions must be made on or before March 1 for them to count towards your 2016 taxes. Any contributions made after the deadline will apply to 2017’s taxable income.
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