Here Are Some Tips To Save On Your Income Taxes, According To An Ontario Tax Expert

Filing taxes each and every year feels like a daunting task, but if you brush up on your financial literacy, you could save some money on your returns.

Narcity spoke with Georgia Swan, an Ontario-based Tax and Estate Planner with TD Wealth, about some ways that millennials and Gen Z can save money when filing their income taxes this year.

Get on top of tax planning throughout the year

While it may be a little late to start planning for the 2021 income tax season, this could be a way to help you cut some costs for next year.

"There are legitimate tax planning options out there," Swan said.

"The simplest and most straightforward ones that everybody knows if you've got a little bit extra, and you are a young person, and you can contribute to an RRSP – absolutely. It's good."

A Registered Retirement Savings Plan is geared to help you save up for when you can finally retire, and according to TD Bank, all of your funds that are contributed to an RRSP is "tax-advantaged." This means that your contributions won't be taxed the year you add money to your RRSP.

Swan also noted that a Tax-Free Savings Account is also another tax planning option.

"TFSAs are one of the best things coming. The minute you turn 18, you should be opening a TFSA [and] putting a little money into it," Swan said.

"It's the only place that money can grow tax-free."

Using your bad investments for capital gain

Aside from tax planning, Swan also noted you can ease your tax burden through some of the stocks you might have invested in that didn't turn a profit.

"You can sell that stock at a loss and then use that loss and apply it to capital gain," Swan said.

"Smart investors look for opportunities where maybe they have made a mistake, or maybe the stock market has suffered [and it's] what I like to call [a] kind of an artificial loss."

Any of your stocks that have had a temporary dip can actually be used to your advantage, as Swan said you could conceivably use that loss to apply against a capital gain from the sale of another stock.

But, there are some rules on how to go about this.

"One of the rules is that if I get a capital loss this year, I can actually carry it back to three previous tax returns," Swan said.

"So, three previous years, apply it to gains that I had during those three previous years, get some of the tax that I've already paid back or I can carry that loss forward indefinitely."

By carrying the loss forward, taxpayers can subtract the loss later on in life.

Donate to charity "in-kind" and not with cash

"Look at your investment portfolio, find shares that are worth $1,000 and donate those shares in-kind," Swan said.

"Here's why – if I wanted to donate $1,000, for example to the Hospital for Sick Children, and I take out $1,000 in cash from my investment portfolio from my bank account, that's after-tax money. So, in other words, that's money that I've paid tax on, I've had to have made, let's say, $1,200 in order to pay that $1,000 to that charity."

But, let's say you have $1,000 of stock shares instead to make your charitable donation.

"If I bought those shares at $700 and they've now grown to $1,000, if I liquidated them to give the cash, I would have to pay tax on the capital gain. But, when you donate shares in-kind, that capital gain is deemed to be nil so you don't pay tax on that money and you still get a $1,000 charitable donation receipt," Swan said.

So, what does this mean exactly?

Instead of paying tax on money and the after-tax money to the charity to make sure they get that $1,000 donation, you'll be using one of your publicly traded stocks and will actually just pay a grand to make the donation.

This interview has been condensed and edited for clarity.