How Can I Optimize My Tax Strategy to Minimize My Tax Liability?

Taxes can be confusing and stressful. But it’s important to have a smart tax strategy to minimize your tax liability and maximize your returns, whether you’re an individual or a business owner. Some ways that you can optimize your tax strategy include:

• Maximizing your deductions
• Carefully planning your investments
• Taking advantage of all available tax credits
• Understanding how your tax bracket can affect your taxes

These are simple steps to a great tax season on the surface. But they can get complicated when dealing with high income and expenses. So, it’s important to hire a professional to help so that you keep as much of your hard-earned money in your pocket as possible.

A Recommended Tax Strategy

There isn’t a single “best” way to optimize your tax strategy because each person’s financial situation is unique, and tax law can get complicated in some scenarios. Here are a few tips that can point you in the right direction and give you something to discuss with your tax professional. 

Maximize Your Deductions

Maximizing your deductions is one of the best ways to reduce your tax liability. Keep track of all your expenses and ensure you claim all relevant deductions when filing your taxes.

As an individual, you can deduct charitable contributions, mortgage interest, and medical expenses. But there is a lengthy list of deductions that may be available to you depending on the province you live in. Hiring a local professional who knows the deductions can help ensure you get all available deductions.

You can also claim different expenses as a business owner, such as fuel costs, legal fees, rent, or property taxes.

Plan Your Investments

Another way to optimize your tax strategy is to plan your investments wisely. By investing in tax-deferred accounts like tax-free savings accounts (TFSAs) and registered retirement savings plans (RRSPs), you can reduce your taxable income and save money on taxes. Investing in these accounts is also a great way of saving for retirement as part of your long-term financial planning strategy.

Moreover, investing in stocks or mutual funds that pay qualified dividends or long-term capital gains can help you save on taxes.

Take Advantage of Tax Credits

Tax credits are a great way to reduce your tax liability because they directly reduce the amount of tax you owe. For instance, you can claim the adoption tax credit if you adopt a child. Similarly, if you are a business owner who hires veterans or invests in renewable energy, you can claim tax credits that may reduce your tax liability.

Just like deductions, there are many tax credits that you can take advantage of to minimize your tax liability. Having a qualified tax professional in your corner can help you find applicable tax credits.

Understand Your Tax Bracket

It’s essential to understand your tax bracket to plan your taxes accordingly. Your tax bracket determines what percentage of your income you pay in taxes. Therefore, if you are close to a higher tax bracket, it may be worth delaying your income or prepaying expenses to reduce your taxable income in that year so you pay less in taxes.

The above strategies can all work together to keep you out of a higher tax bracket if you’re on the edge. This is why it’s so important to maximize all these strategies.

Hire a Tax Professional

Choosing the right tax professional can help you navigate the complex world of tax laws and regulations. By understanding the different types of tax professionals, you can decide which one is the best fit for your financial needs. For example, some professionals only do simple returns, while others specialize in business taxes.

Remember that it’s important to check credentials, licensing, and professional associations before engaging in their services. Don’t hesitate to get referrals from family and friends or do online research.

A tax professional may be qualified to do certain types of taxes, like a basic tax return. But in more complicated situations, such as high incomes with many expenses and credits or business taxes, hiring someone with experience or who specializes in these types of tax situations may be beneficial.

A qualified tax professional can help you not only with preparing and filing your taxes but also with providing advice on other related financial issues.

Discuss Your Tax Strategy with Us

Whether you’re interested in investing to minimize your tax liability this year or you want to develop a long-term financial plan that sees you into your golden years, our team is available to discuss your needs.

Contact us at Qopia Financial to schedule an appointment with one of our financial consultants.