If you or a family member is a fan of memes – “an amusing or interesting item (such as a captioned picture or video) or genre of items that is spread widely online especially through social media” – you may be familiar with the recent ones half-joking, half-lamenting about how 2022 could possibly be upon us when it feels like we’re still processing 2020. Even if you aren’t familiar with internet jokes, it’s a pretty relatable sentiment.
Ready or not though, it’s that time of year again – winter is here, people are caught up in the holiday fervor and 2022 is looming on the horizon. Locally and globally, for worse and for better, so much has changed in the past two years. The pre-COVID tax season feels like it was a half century ago and the idea that COVID would only cause a short-term interruption to our regular lives is a distant, unfamiliar one.
One area of our lives where we can see (sometimes drastic) change is the way we spend money. For those who switched to working from home, we can see the positive impact of not routinely grabbing a coffee on the way to work or buying gas for our commutes. For others, there’s been a priority shift (necessity versus luxury) that has us reexamining what we spend our money on. Our blog from earlier this year Making Conscious Money Decisions looks at some of the statistics on changes in spending habits over the last two years.
Some of these changes had and will continue to have tax implications. For the 2020 tax year, the federal government offered eligible employees who worked from home a $400 deduction without the need for receipts or a signed T2200. This simplified deduction is being carried forward for 2021 and increased to $500 for those who are eligible. If COVID has made it even more difficult to keep up with the ever-changing tax landscape, we highly recommend seeking professional advice so you don’t miss out on opportunities to boost your refund.
If you are someone who “found” money in their household budget because of said changes, now is the time to consider how to use the funds in a beneficial or maybe even tax efficient way. Whether this money presented itself due to not taking a vacation or spending less because you aren’t leaving home as much, there are ways you can put it to work for you.
Contributing to a registered retirement savings plan (RRSP) can help you both in the future and more immediately with a tax benefit. You have from now until March 1, 2022 (60 days after the end of the year) to contribute to your RRSP and impact your 2021 income taxes. Contributing to an RRSP is a good option if you don’t need access to the funds until later in your life.
If you think you may need access to the money sooner, for a shorter-term goal, then a tax-free savings account (TFSA) might be a better choice for you. For a detailed comparison about RRSPs versus TFSAs, check out this post from 2020: What’s right for you? TFSA, RRSP… or both? A TFSA is an option for people who want to keep funds more accessible, yet also invested to have access to a higher rate of return. Because there is no tax deduction for a TFSA contribution, there isn’t a deadline to contribute to a plan.
If you are a parent or a grandparent, a RESP may also be a good way to utilize your “found” funds. One of the benefits of RESPs is the government grant that matches part of your contribution and helps your dollar go further. This education savings program does not have a tax benefit to the contributor so there is no deadline to start a plan or make a contribution in connection with income tax.
Like a number of industries over the last two years, many non-profit organizations were unable to operate as usual. Many were unable to fundraise with large-scale events while others’ resources were stretched with increased demand. If you do have some money you can spare, you may want to consider a donation to your favorite charity. If you choose a charity with the ability to offer a tax receipt, then it is important to get your donation in before the end of the year to be able to claim it for 2021.
Benjamin Franklin famously said, “In this world, nothing is certain except death and taxes.” After the past few years we’ve had, it’s probably safe to say we can modify that idiom to include “and uncertainty.” As 2021 comes to a close, we’re thinking about how the impacts of COVID-19 have now lasted two income tax seasons and there’s really no telling how it will continue to impact future years. But here’s what we do know: 2022 is coming, uncertainty is certain, and if there’s one tenet we live by at Intent, it’s that it pays to be prepared for the unexpected.
If you have any questions about your financial situation, income taxes, or how to put your uncovered money to its best use, please connect with us today.