What tax write-offs should every midwife take advantage of to minimize taxes?
Writing off something on your taxes simply means deducting an amount -- permitted by the Canada Revenue Agency -- to reduce your taxable income. You can write off numerous items on your taxes, ranging from RRSP contributions to self-employment expenses.
Some tax write-offs also come in the form of nonrefundable credits, which reduce the amount of tax you owe directly. Tax write-offs are beneficial to you as a taxpayer because they can save you money on your tax bill. The most common write-offs for midwives are as follows:
1. RRSP Contributions: Deductible RRSP contributions can be used to reduce your tax. Generally, any income you earn in the RRSP is exempt from tax as long as the funds remain in the plan; that said, you usually have to pay tax when you receive payments (withdrawals) from your RRSP.
Midwives can determine their RRSP contribution amounts for tax purposes from the receipts mailed to them by Morneau Shepell (for contributions prior to January 1st, 2015) and Desjardins (for contributions on or after January 1st, 2015). You should receive 2 receipts for each calendar year; one for the first 60 days and another for the remainder of the year. Contact the AOMBT if you are missing any receipts.
2. Medical Expenses and Health Premiums: Married or common-law couples are allowed to pool their medical expense claims together. Taxpayers claiming medical expenses should be sure to keep all receipts related to their returns. The expenses eligible for the medical expense credit are quite lengthy. Refer to IT519R2 (CRA website) for a complete list.
You can deduct the premiums you paid for health coverage. Midwives receive a receipt with premiums paid for the previous year every March.
3. Donations: The CRA allows a tax credit on charitable donations of approximately 21% for the 1st $200 (in Ontario) and 40% on amounts over $200, up to a maximum of 75% of net income.
Spouses can pool their contributions to maximize the tax break. Furthermore, contributions need to be included but not be claimed in the tax year they were made, but can be carried forward for up to five years. Donations under the $200 limit can be accumulated and claimed in later years to qualify for the higher credit allowance.
CRA offers a searchable database (http://www.cra-arc.gc.ca/chrts-gvng/lstngs/menu-eng.html) of registered charities permitted to issue tax receipts.
4. Out of pocket expenses not reimbursed by the midwifery practice: According to the CRA, you can write off any reasonable expense you incur to earn business income (on the self-employment statement called T2125). This includes expenses such as:
- Accounting fees
- Professional fees and memberships
If you are going to write off expenses on your taxes, it is a good idea to hold onto receipts for 7 years as the CRA may request them. The CRA also sets the requirements for each type of deduction and credit, which can be reviewed on their website: www.cra-arc.gc.ca. -S.M.Top of page