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Tuesday, October 20, 2009

Legally Deferring My Taxes

Just an update on my tax situation. A few months ago, I filled out a T1105 form from the Ontario government that would allow me to pay less income tax off of each paycheque. The idea is simply this: rather than get a large cheque back come income tax time, to get a little more for each paycheque throughout the year. Over the course of the year, I will still earn the same amount and pay the same amount, but rather than have the government hang onto my extra taxes paid, I would pay less for each paycheque. The math behind this is that I can use this extra money immediately to either invest, or to pay loans or whatever. It is a better use of my money to have it now rather than to have the government hang onto it for the better part of a year.

So my plan was to have half of my RRSP deductions taken off each paycheque. So if I contribute $200 per paycheque to RRSPs, I would have the government tax me on $100 less of my salary. In this way, I will still get some money back come tax time, but also get a benefit now.

It works perfectly so far (we'll see what happens come income tax time). I went to the bank and got a letter saying what my RRSP contributions were and then the government agreed to reduce my taxes each paycheque. If I want to do this for 2010 (which I do) it was recommended that I get all my paperwork in by November 1st of 2009 (which I will immediately do).

Some people like getting a big cheque back at tax time. It's almost like a Christmas bonus or a lottery winning. I would much rather have more disposable income throughout the year and have more control of my money, so I will continue to do it this way.

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