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Tag Archives: taxes

This weekend there was a TTC strike! It happened suddenly on Friday night, with no media build-up; so when I was out and about early-ish Saturday morning, I was on the lookout for any uninformed people waiting for the bus. I did see a couple of people sitting at bus stops, but for the most part the only effect were many more taxis around my ‘hood.

I did my taxes on Saturday. They had been “done” for awhile as I had been entering in the numbers as I received my T-slips, but I had to check things over and enter the DQ info. But then, I also did Pauline’s, her sister’s, and my mom’s taxes as well. Saturday evening I met up with a bunch of people to celebrate Charlie’s birthday. Afterwards we headed over to his place to watch Full Metal Jacket.

On Sunday, I went over to Nelson’s house to try out Mario Kart Wii and to play some Super Smash Brothers Brawl. The Wii version Mario Kart packages a wheel accessory with the game which you slip the Wiimote into. It’s gimmicky and hard to control though. They also added bikes which doesn’t seem right since it’s called Mario KART.

I got home at about the right time (although maybe 20 minutes later for the light) and went out to take some pictures of the cherry blossoms that were blooming in front of my building. Fortunately for me there are no not many tall buildings blocking the view to the west so I was trying to get the last glimmers of sun. Didn’t work out so well, but still pretty.

I did some calculations on my previous impressions of whether I should claim my RRSPs this year, or save them to lower my tax bracket in the future. Now that I have some clear numbers, it seems worthwhile to save my contributions for the immediate future.

Based on 2007 figures tax rates, the federal tax bracket is ~$74k while the Ontario tax bracket is at ~$71k. For simplicity, let’s say that both tax brackets are at $73k. The federal tax rate moves from 22% to 26% while the Ontario rate moves from 9.15% to 11.16%. Overall, when you exceed the tax bracket, you pay an additional 6% more tax on the excess amount over the boundary. Let’s say I made $80k in 2007 and so had to pay an additional 6% on the extra $7k, or $420. To prevent this extra tax, I could use $7000 in RRSP contributions. So the question is, what would have been my opportunity cost for that $7k in RRSPs?

Regardless of when you claim the RRSP, you have to pay 22%+9.15% (let’s say 32%) tax on the $7k. If you claim the RRSP in the future, then you save the extra 6% ($420) tax you would have paid. However, if you claimed the RRSP in the past, you would end up with an extra 32% ($2240) to play with for a couple of years. Now, compound interest comes into play. If you delay a year, then you need to earn 18.75% interest in order to break even. A pretty unlikely goal, so delaying one year is worth it. The percentages work out to { 8.9%, 5.9%, 4.4%, 3.5% } for 2-5 years into the future.

From those numbers, it seems worth it to delay RRSP contributions by 2 years, 3 at the outset. Since the numbers are ratio based, it would work the same for $3000 or $15000 in contributions, although remember that it’s based on the assumption that you will exceed the (moving) tax bracket boundary by the equivalent of your saved contribution within 3 years. If your income is steady, then your rate of return on the open market will need to be much less in order to break even, so then it’s better than claim the RRSP benefit immediately (provided you’re not going to waste the money on candy).

Now I have to figure out how this works when you have a spouse.

I’ve invested in RRSPs as I mentioned previously, but I’ve come to realize that I have a second, albeit not as pressing, dilemma. As I mentioned before, I haven’t edged into the next tax bracket, so I don’t need RRSPs to lower my tax bracket; although even that is moot because you only pay extra tax on the marginal portion above the bracket. If you’re only slightly over, using RRSPs to lower the tax bracket doesn’t seem to save much tax, so whether or not one should claim RRSPs should be due to whether they want to pay less tax or not.

The question for me is whether I want to claim my contributed RRSPs this year, and save on tax now, or save it for a future year. I’m not desperately needing the extra tax relief my RRSP contributions would save so I’m considering whether I should save my claim for future years where I may need the extra money. The danger in saving up my contributions is that I run the risk of my previous contributions plus the current year’s contributions exceeding my total available contribution cap. My accumulated cap may seem high (i.e., > $20k) but I might end up contributing close to the cap in order to benefit from the HBP. Although it seems like I have sufficient room to not have to worry about that.

I guess the final point is that if I were to not claim my contribution, I pay a (real) opportunity cost now for the possibility of a benefit later. I could take my tax savings now and invest it or buy a new camera etc. Although when you consider what ~40% of 10% of my annual income is, it’s not a terribly large amount of interest I can earn.

For my Canadian taxes this year, I tried using software program to file my return. A couple years ago, we had bought tax software to file, but it wasn’t really worth the money as my family has a pretty simple tax situation. Being cheap, the next few years I just did all my calculations in Excel so I could update my forms without a lot of calculator punching.

This year, I found a free program to do my Canadian taxes and used that to file. In fact, I’ve been sitting on my taxes since late February. In March, I kept waiting for all my receipts and forms to arrive. I wasn’t really sure when they had all been received, so I held off from submitting my return. Then I was waiting for Tommy to create the budget for dq, although because we had a loss this year, we possibly could have carried it over to a later year.

So the process dragged on and I didn’t file my taxes until late in April. This wasn’t an optimal situation because I was getting all the tax I paid back in my return (yay for being poor). But, it was good for two reasons. First, Tommy’s accountant said that we should claim an income even if it’s negligible because $0 sets of audit warning bells, and 2) Peter mentioned that RAs (Research Assistantships, but Fellowships in CRA-talk) do not have to be counted as part of income this year. When I heard about #2, I was happy because that would reduce my income to almost $0. Of course, Waterloo decides to screw me over again and counts my RA as employment, so I get no benefit.

I had to file US taxes this year even though I didn’t work in the States last year. It was fallout from when I was in Seattle because I still have an open bank account there. I originally intended to just ignore it (no income == no taxes!) but I received a form that outlined how much (little) I made on interest. So I planned to go through and file, but after closer inspection of what the actual codes on the form meant, it turns out the income was tax exempt. Anyways, I had already begun filling in my 1040NR-EZ form for non-resident aliens, so I finished it off. My postage of $1.78 cost more than the tax I had to pay, which came out to a big fat $0 on $0 of income. What a waste of a tax return.