Adam is a value investor who is always on the hunt for fantastic undervalued companies that he can share with Motley Fool readers. He follows Warren Buffett and Charlie Munger's investment advice and has completed the Canadian Securities Course. When he's not investing, Adam can usually be found traveling or skiing.
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The year 2020 has been a strange and unforgiving one for everybody. However, we have managed to make the best of it in Canada, and we have another harsh reality waiting for us in 2021: tax season.
The income tax for 2020 will be quite strange given that many Canadians will be counting their stimulus funds as taxable income. Regardless, paying our dues is necessary to keep the economy healthy. By the time you retire, you will pay plenty of taxes through your regular income.
What if I told you there is a way to make money that can let you keep 100% of your money by the time you retire?
TFSA tax-free advantage
The Tax-Free Savings Account (TFSA) is your answer for an utterly tax-free retirement fund. This account type provides you with the advantage of enjoying all of your money in the account, including capital gains and dividends, to grow tax-free. It makes the TFSA an ideal way to save money for your retirement and any other long-term financial goals you have.
The latest update to the TFSA contribution limit added $6,000. It means that the total amount you can contribute to a TFSA for 2020, if you have not contributed before, is $69,500. If you have been maxing out the contribution room in your TFSA since its inception 11 years ago and you earned an average of 6% each year, you could have over $85,000 in your account!
Imagine getting better returns on investments in your TFSA throughout your career. You can end up with a massive retirement nest egg that the Canada Revenue Agency (CRA) can’t even touch for income taxes.
Using your TFSA
Maximizing the contribution room in your TFSA does not necessarily mean using cash to fill the account and relying on returns through interest. There is a better way to use the contribution room to get ideal returns that can see substantial growth in your TFSA. One of the best things you can do with your TFSA contribution room is allocating it to dividend-paying stocks like Telus Corp. (TSX:T)(NYSE:TU).
Telus has averaged returns of 12.31% in the last decade. At its current share price, the stock offers its investors a juicy 4.93% dividend yield.
Telus is one of the most dominant operators in Canada’s telecom industry. The company has more than nine million subscribers for its wireless services and has millions more for its wired line and television services. The company has also started operations in the healthcare and home security sectors.
The company purchased a high-end clinic to expand its reach to the healthcare enterprise solutions. Its purchase of ADT’s Canadian operations allowed the company to enter the home security market and increase its revenue-generating capacity beyond traditional telecom services.
Buying and holding Telus shares in your TFSA can help you make massive profits through an impressive 12.31% compound annual growth rate that many other companies cannot match. With the rollout of 5G services and its expansion into other sectors, it is possible that Telus can offer you even more substantial returns.
Foolish takeaway
Paying taxes is an essential duty as a Canadian. The fact that everybody paid their dues allowed the government to allocate funds for such an impressive stimulus package that kept the economy afloat during the pandemic.
However, there are ways you can earn and save money for your retirement without having to pay a large chunk in taxes. Buying and holding shares of dividend-paying stockslike Telus in your TFSA is one of the best ways you can begin doing that.
Maximize your tax benefits with Roth IRA distributions, as withdrawals from a Roth IRA during retirement are totally tax-free. Prepare for required minimum distributions in 2023 and diversify your retirement income sources to keep your overall tax bill low.
Tax withheld at source – Generally, taxes are withheld from your pension income, but you may have to pay additional tax when you file your income tax and benefit return. You can request additional taxes be withheld at source to lower the tax you owe when filing your income tax and benefit return.
Individually, Canadians in most provinces can earn up to $50,000 per year without paying any income taxes. There are a few exceptions — like Quebec and Nova Scotia — but main provinces like Alberta, British Columbia, Saskatchewan, and Ontario have this rule in place.
You can also save on taxes by sharing your Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) with your lower-earning spouse or common-law partner. This strategy is especially helpful if one spouse or partner doesn't have much work history (and has limited contributions to CPP/QPP).
At What Age Can You Stop Filing Taxes? Taxes aren't determined by age, so you will never age out of paying taxes. Basically, if you're 65 or older, you have to file a tax return in 2022 if your gross income is $14,700 or higher. If you're married filing jointly and both 65 or older, that amount is $28,700.
As a non-resident of Canada, you pay tax on income you receive from sources in Canada. The type of tax you pay and the requirement to file an income tax return depend on the type of income you receive. Generally, Canadian income received by a non-resident is subject to Part XIII tax or Part I tax.
There is no specific age. It depends on how much income you have earned in a tax year (January 1 – December 31). If you earn more than the amount of the personal exemption allowed by the Canada Revenue Agency within one tax year, you will need to report that income on an annual tax return and you may have to pay taxes.
In the latest year for which CRA data is available, 27.5 million people filed a tax return. Of that, over 9.1 million people or one-third of all filers paid no federal income tax that year. Thus 18.4 million tax filers paid all federal and provincial income tax.
If you can't pay your taxes, the CRA may withhold tax credits as a means of recovering the outstanding tax debt. This can mean forgoing GST/HST tax credits, the climate action incentive payment, and other tax credits until the CRA has recovered the amount owed.
For retirees 65 and older, here's when you can stop filing taxes: Single retirees who earn less than $14,250. Married retirees filing jointly, who earn less than $26,450 if one spouse is 65 or older or who earn less than $27,800 if both spouses are age 65 or older. Married retirees filing separately who earn less than ...
Taxes aren't determined by age, so you will never age out of paying taxes. Basically, if you're 65 or older, you have to file a return for tax year 2023 (which is due in 2024) if your gross income is $15,700 or higher.
Generally, your Social Security benefits are taxed when your income is more than $25,000 per year, including income from investments held in retirement accounts like traditional 401(k)s and IRAs. If Social Security is your only source of income, you likely won't pay any tax on those payments.
Questions and Answers for Senior Citizens and Legally Disabled Persons Owing Tax Debt. Can Retirement or Social Security Income Be Garnished for Past Due IRS Income Taxes? The IRS can garnish (offset) 15 percent of federal benefits like social security for past due income taxes.
Taxes aren't determined by age, so you will never age out of paying taxes. Basically, if you're 65 or older, you have to file a return for tax year 2023 (which is due in 2024) if your gross income is $15,700 or higher. If you're married filing jointly and both 65 or older, that amount is $30,700.
Most retirees rely on a few different sources of income, and there are ways to minimize taxes on each of them. One of the best strategies is to live in or move to a tax-friendly state. Other strategies include reallocating investments, so they are tax-efficient and postponing distributions from retirement accounts.
Introduction: My name is Mr. See Jast, I am a open, jolly, gorgeous, courageous, inexpensive, friendly, homely person who loves writing and wants to share my knowledge and understanding with you.
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