According to the Canada Revenue Agency, the average tax refund in 2011 was $1,583. It is nice to receive a cheque from the government but a tax refund is not good, because you are only receiving your own money back. Your tax refund is money you have overpaid the government during the year. Some people call this "intaxification" -- the euphoria you feel when you get your tax refund and then realize that it was always your money anyway.
If you have a financial plan, tax planning should be part of it. Most people do not think about their taxes until they file their return. By then, it is usually too late to actually do anything that impacts the result, and you are stuck with an unexpected tax bill. Ideally, you want to neither owe money nor receive a refund when you file your tax return. You want to pay the right amount of tax during the year, rather than give the government an interest-free loan.
Pay attention to paycheques
If you are a salaried employee, your payroll department will ask you to complete a TD1 Form when you are hired. Employers are obligated to withhold tax based on how you complete your TD1 Form. In most cases, people fill out the form and never think about it again. But if your life changes, you should update your form to reflect the new situation.
For example, you can indicate your tuition carry forward amount on your TD1. If you were not able to use all your tuition and education credits while you were going to school, the amount you carried forward should be on your last Notice of Assessment. The credits usually result in a nice refund when you file your first tax return after school, but you may want to receive a little bit more on your paycheque every month instead of a lump sum when you file. If you do include your carry forward amounts on your TD1, make sure you update the form the following year when you no longer have the credits.
You should also update your TD1 if you get married and your spouse has little to no income. For example, if your spouse earned no income in 2012, the spousal amount would be $1,623 in tax savings. So updating your TD1 means an extra $135 per month, rather than the lump sum at tax time.
The same applies if you have a child, since you can claim the child amount for tax savings. And if you are a single parent with custody, you can claim the eligible dependant amount. It may not result in a huge increase in your paycheque but it is better than giving the government an interest-free loan.
Claiming other deductions
The TD1 Form does not cover all the credits and deductions that are available on your tax return. If you want your tax withholding changed because you make a large Registered Retirement Savings Plan (RRSP) contribution every year, you cannot just ask your employer to make the adjustment. You have to complete a T1213 Form Request to Reduce Tax Deductions at Source, provide supporting documentation and send it to the CRA for approval. The CRA will require proof that you are making your RRSP contributions.
You can also use the T1213 Form if you have childcare expenses, since these can also lead to significant tax savings.
Once you have received approval from the CRA, notify your payroll department and it will make the adjustments. With a few exceptions, you have to complete the T1213 Form every year, so it does require some planning.
Understanding tax events
Many events have major tax implications. Trying to figure out how to lower your tax bill on April 29 is not good planning.
Inheritances are not taxable, for example, but if you earn income from the money you receive then that income is taxable. And if you inherit a house when you already own one, you may be facing capital gains on the eventual sale of the home. If you have a stock or share that has been good to you during the year and you cashed some of your holdings, you will again be facing a capital gains amount. And bonuses or gifts from work may be considered a taxable benefit and appear on your T4.
It is important to think about your taxes outside of the last few weeks before the deadline. Life events -- both good and bad -- can change your tax situation and being aware of that will likely save you both money and headaches.
You might want to think twice about getting that schmear. In New York City, bagels that are sliced or prepared are subject to sales tax, whereas whole bagels are not, according to the Wall Street Journal.
If you live in Durham, North Carolina, you could be paying a tax on Rover. The state charges a $10 tax for neutered and spayed pets and $75 for pets that are not neutered or spayed, according to Turbo Tax.
In Illinois, all candies are subject to an extra tax, unless they contain flour, like the Whopper pictured here.
By the time you're 100, you've paid enough in taxes, at least according to the state of New Mexico, where people over 100 years old are tax-exempt.
If it's yellow, let it mellow could be the motto of some Maryland and Virginia residents looking to save money. In these two states there's a tax on flushing the toilet, according to Bing.
Tennessee anonymously collects a tax on illegal drugs, according to NPR. In 2006, the state collected $1.5 million from the tax.
Adult diapers are exempt from sales tax in Connecticut, but if you're buying diapers for your kids you'll have to pay taxes on those, according to Thomson Reuters.
Colorado levies a tax on "non essential" food packaging items, according to Business Insider. That means you'll pay a tax on paper cup lids and napkins, but not on paper cups themselves.
Businesses in Utah that employ nude or partly nude workers are required to pay a 10 percent sales tax, according to U.S. News and World Report.
If you buy cards in Alabama you'll pay a 10 cent tax on the deck, according to Turbo Tax. Meanwhile, Nevada gives free decks in exchange for completed returns.
In Texas, holiday-themed pictures that are meant to be placed on walls are taxed, according to efile.com.
In Arkansas, there's a 6 percent sales tax on tattoos, according to Turbo Tax.
New York has a tax on litigation, according to ABC News.
In Kansas, you have to pay taxes on that hot air balloon ride -- or risk flying away. In that state tethered balloons are taxed, but those that roam free are not because they are considered a legitimate form of transportation, according to ABC.
Another reason not to buy your fruit from a vending machine. Fresh fruit is exempt from sales tax in California, unless it's sold from a vending machine, according to U.S. News and World Report.
Follow Cleo Hamel on Twitter: www.twitter.com/@CleoHamel