Though the tax strategies vary from country to country where you live, in general, there are certain strategies that would apply in common to the tax system in all the countries. The taxes should always be considered as an ongoing cost and you should always consider tax before going for any kind of investment. If you need to choose a job between two you need to look for the one where you get more income even after-tax deductions.
The following are the basic concepts on which the tax system is constructed.
Timing is important: –
Taxes are usually paid annually or quarterly if you pay or report quarterly. You should even know that the tax amount would be based on your income. The more you earn the higher would be your tax. If you claim a certain amount in income for a year you may need to pay more tax while if you claim the same amount for two years the tax would be less.
RRSP’s and tax timings: –
The registered retirement savings plan or any other related plans are tax timing vehicles. The tax would vary when you put money into the tax shelter and when you remove it from there. But usually, tax would rise as time passes. The best thing you can do is to go for RRSP when you have high income and withdraw when you have low income.
Type of income and associated risk is important: –
If you are living and working in the same country the tax rate is highest for income, lower for dividends and still lower for capital gains. If you move to another country these tax rates might vary from your old country.
Federal and Provincial taxes: –
You can find the Federal and Provincial taxes in Canada. The provincial taxes are nothing but the percentage of federal taxes. The high is your income the more would be your provincial taxes.
Tax Credits: –
If you have got tax credit eligibility then make sure to get the most out of it. You should decide whether you would make a transaction with or without tax.
Tax strategies outside the scope of tax code: –
Always be careful about the tax strategies that save tax for you and are outside the scope of the tax code.
Running a business and taxes: –
Having your own business would let you pay fewer taxes when compared to the people who work for the employer.