Yahoo Finance Married Canadians: Know This Before Filing Your Taxes
Written by Amy Legate-Wolfe at The Motley Fool Canada
Canada gets compared to the United States a lot. But there are differences — some of them quite enormous. For instance, in Canada, we cannot file returns as a couple. Instead, Canadians must file separately.
That being said, this might prevent some Canadians from “coupled filing.” While it’s not submitting a single return together, it’s a strategy to optimize both of your tax situations by simply preparing together.
So, let’s get into why married Canadians need to know about “coupled filing” and how to take advantage of it!
How it works
To start filing as a couple, married Canadians will need to gather all their tax slips and information together. Then, communicate. Discuss medical expenses, charitable donations, and child-related expenses that can be claimed by either of you.
Then, you’ll want to choose tax software if you have a fairly straightforward tax return. These programs will guide you through the process and usually ask whether you are coupled or married. This will allow you to input your and your spouse’s information.
The software will also help identify benefits and credits from your combined information. It should also suggest the most tax-efficient way to claim deductions and credits across both returns! For instance, it might recommend whoever made less that year claims childcare costs over the other for more benefits.
Credits and benefits you might receive
When married couples consider this coupled filing method, there are several potential benefits and credits or deductions they can receive. And in many different areas.
For instance, you could consider pooling and even transferring cash to each other. This would be beneficial if you combined medical expenses for yourself, your spouse, and dependents as the spouse with the lower income. Rather than split it, the lower income would likely give you a better chance of maximizing your benefit. The same can be done for donations.
There’s also the spousal tax credit, which helps reduce the tax burden for the spouse with the lower income. Furthermore, there are investment strategies as well. This includes pension income splitting, where if one spouse has a significantly higher pension income than the other, they can share that income for tax purposes with their spouse. The Registered Retirement Savings Plan (RRSP) also reduces your taxable income. So, couples can discuss how to contribute to their RRSPs to strategize and optimize their combined tax savings.
Using the cash
You’ve now filed your returns, and you’re looking at way more cash than usual (hopefully)! But there’s something couples should continue to do. Don’t simply file together; invest together.
Again, use that RRSP strategy and start right away for next year. You could consider putting all that cash right into your RRSP to reduce your taxes for the future. One investment that could be worth your while is Vanguard S&P 500 ETF (TSX:VFV).
This exchange-traded fund (ETF) tracks the S&P 500 Index, which represents the largest 500 companies in the United States. This provides instant diversification, leading to lower risk. It also offers a low expense ratio since it’s a passively managed account. Furthermore, it’s a liquid ETF you can take out at any time and offers a dividend yield of 1.16% to reinvest as well.
You’re a couple, so act like one! It could literally put cash in your pocket.
The post Married Canadians: Know This Before Filing Your Taxes appeared first on The Motley Fool Canada.
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Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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