Personal Finance

Any Tax Experts out there? ... halp?

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  • Jan 21st, 2012 10:31 am
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Deal Addict
Mar 18, 2009
1458 posts
286 upvotes
Renous

Any Tax Experts out there? ... halp?

Ok, I'll try to generalize.
Yearly income approx $98,000
Taxes taken as 'single' but I have 3 dependants under 18 and 1 spouse with $0 income <-- could change in the next few months, prospective job 80% in the bag.
Usual refund is around $3000

2011 received a bonus from work. $18,000. Requested $10,000 no tax witheld. Was going to use the $10,000 to purchase RRSPs to offset, and avoid taxes altogether.

Problem is this, didn't receive the $18,000 until January (couple of weeks ago) so it looks like this income will be on my 2012 T4. So, I can take the $10,000, buy the RRSPs, enjoy the tax savings off my 2011 income (bonus!), but I'm guessing I'll be screwed in 2012.

My question; What do you suggest I do? Apply the RRSPs to 2011, or wait until March - April and buy them for 2012? Or, increase my tax deductions for the rest of the year to make up for the $10,000 payment. If I go that route, how much approx will I need to take off of each cheque?

Any help would be appreciated!

TIA :D
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8 replies
Newbie
Nov 9, 2010
60 posts
10 upvotes
Richmond
You are still able to invest the money in RRSPs right now, and claim them on your 2012 income tax. That way the gain interest free for now, so that you get that little bit of extra compounding.
Deal Fanatic
Feb 1, 2006
9645 posts
911 upvotes
Muskoka
Apply to 2011, of course. Why let the government keep your money longer, for no reason? Just budget for the taxes next year. The taxes owed will roughly be the amount of extra income times your marginal tax rate. I wouldn't have it taken off each cheque, I'd take as much net as I could, and just save for it, earning interest (or saving interest, if you have a balance on a line of credit). Also, why have your tax witholding set as single, when you have so many credits? Getting a refund is bad, it means you let the government hold your money interest free all year. You can file a new TD1 anytime your situation changes, and your payroll person should adjust on next pay.

I'm surprised your payroll department let you have the $10k. The rules are that the employer themselves must make the RRSP contribution, not give it to you. It also should have been $18k, not $10k net. (I'm a payroll manager)
Deal Addict
Mar 18, 2009
1458 posts
286 upvotes
Renous
Bullseye wrote: Apply to 2011, of course. Why let the government keep your money longer, for no reason? Just budget for the taxes next year. The taxes owed will roughly be the amount of extra income times your marginal tax rate. I wouldn't have it taken off each cheque, I'd take as much net as I could, and just save for it, earning interest (or saving interest, if you have a balance on a line of credit). Also, why have your tax witholding set as single, when you have so many credits? Getting a refund is bad, it means you let the government hold your money interest free all year. You can file a new TD1 anytime your situation changes, and your payroll person should adjust on next pay.

I'm surprised your payroll department let you have the $10k. The rules are that the employer themselves must make the RRSP contribution, not give it to you. It also should have been $18k, not $10k net. (I'm a payroll manager)
I tend to agree, ... I was thinking take the extra deduction and buy more RRSPs for the 2012 year. So I just need to figure out how much $$$ the tax on $10,000 will be and plan for that, right? The only reason I have my tax witholding as single, is because my spouse has gotten part time work here and there, and it throws my taxes off (happened one year, and we had to pay).

Without going into too much detail, it was set up to let the employee self direct their RRSP. ... I'm sort of a n00b with this, so bear with me please :o ...

What they did was give me one cheque with the $10,000, and taxed the $8000 portion, .. took CPP and EI too :mad: .
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Deal Fanatic
Feb 1, 2006
9645 posts
911 upvotes
Muskoka
patpond wrote: I tend to agree, ... I was thinking take the extra deduction and buy more RRSPs for the 2012 year. So I just need to figure out how much $$$ the tax on $10,000 will be and plan for that, right? The only reason I have my tax witholding as single, is because my spouse has gotten part time work here and there, and it throws my taxes off (happened one year, and we had to pay).

Without going into too much detail, it was set up to let the employee self direct their RRSP. ... I'm sort of a n00b with this, so bear with me please :o ...

What they did was give me one cheque with the $10,000, and taxed the $8000 portion, .. took CPP and EI too :mad: .

The CPP and EI make no difference at your income. You'l just max out earlier in the year now. You would have paid the same amount for the year either way, I'm saying.
Deal Addict
User avatar
Dec 28, 2011
2587 posts
258 upvotes
Calgary
patpond wrote: I tend to agree, ... I was thinking take the extra deduction and buy more RRSPs for the 2012 year. So I just need to figure out how much $$$ the tax on $10,000 will be and plan for that, right? The only reason I have my tax witholding as single, is because my spouse has gotten part time work here and there, and it throws my taxes off (happened one year, and we had to pay).

Without going into too much detail, it was set up to let the employee self direct their RRSP. ... I'm sort of a n00b with this, so bear with me please :o ...

What they did was give me one cheque with the $10,000, and taxed the $8000 portion, .. took CPP and EI too :mad: .

Before long you will get all the tax information from your employer and will figure out the the mount owning or refund. But as far as RRSPs,contribute now and you have an option to use it for 2011 or 2012 depending what your want to do and what you can do for 2011. But if you have room for 2011 use it, and you will get a refund for that portion this year rather than wait for next year. It seems you have flexibility in your budget and have the cash. I n any case it also will increase this year as your wife will get some $$$ coming in.
Deal Addict
Nov 26, 2005
3214 posts
387 upvotes
Vancouver
you can buy rrsp now and apply either in 11/12/13/14....
if you think you will pay higher marginal % by more than 3% next year, apply RRSP deduction next year
if it is the same or under 3%, apply it in 11.

you can substitute 3% with your unrisked rate of return.
Deal Addict
Mar 18, 2009
1458 posts
286 upvotes
Renous
ccyk wrote: you can buy rrsp now and apply either in 11/12/13/14....
if you think you will pay higher marginal % by more than 3% next year, apply RRSP deduction next year
if it is the same or under 3%, apply it in 11.
Ok, I went to taxtips.ca and got this info. It looks like the income ($18,000) will be put on my 2012 income (I'll know for sure when I get my T4 for 2011) Here are the marginal tax rates for my province:

For 2011 - over $83,088 up to $120,796 38.40%
For 2012 - over $85,414 up to $124,178 38.40% *** I may hit this if I get my bonus in 2012 *** :arrow: over $124,178 up to $132,406 40.30%

So, at first glance, I should buy and apply the RRSPs to my 2011 tax year right? It seems to be the general consensus. It looks like if I'm even bumped into the higher tax bracket, I'm still within a 3% (actual 1.9%) difference.
you can substitute 3% with your unrisked rate of return.
What does all that mean though? Sorry I'm new to this, RRSPs etc. :o .
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Newbie
Jan 19, 2012
38 posts
4 upvotes
PORT ELGIN
put it into the RRSP now anyhow ..Use as much of the 18000 against your 2011 tax as you need to this year to reduce your taxable income down to the 83 088 and save the remainder for 2012's return. In your case you should claim roughly (98000-83100) 14900 against your 2011 return and carry the remaining unclaimed portion into the next year..This will ensure you rrsp tax returned would be 38.40% of the 14900 this year... and prehaps a little higher( 40.30 %)or the same percentage when you use the unclaimed deductions against your taxes next year. Any RRSP deductions that you use for 2011 that bring your taxable income below the 38.4% bracket would be unwise since it just lowers the tax returned per dollar claimed.

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