Manage My Money: $1, 650 In 30 Minutes, Just Because I Know The Tax Rules. I’ll Show You How I Did It.
Please read the disclaimer before you continue
I lied. I don’t know the tax rules that well. I just have a really good tax advisor. I will show you how I manage my money and got a much bigger tax return just by knowing the rules and taking advantage of them. The information in this personal example is Canadian based content as I currently live in Canada. Please check with your local rules and regulations, as they may be much different from this example.
So here is step-by-step how I made an extra $1, 650 in 30 minutes:
1. I consulted with my tax advisor prior to the end of the tax season. This way we could put together a plan for the 2008-tax season. (10-min phone call)
2. Next I opened an RRSP with the local bank. I used my high-interest savings account to put $7, 500 into it. Then I just registered the account. (20-min appointment)
3. I get $1, 650 back from my taxes. (RRSP’s are tax deductible).
4. After 90-days I can withdrawal the money from the account using what’s called the “home buyers plan”. I will need the paperwork that proves the sale to be able to withdrawal the money. The money does not have to be used for the down payment. It can be used for renovations, upgrades or just put back into your bank account. It can be used for anything. I just withdrawal it using the “home buyers plan”.
5. I don’t personally like RRSP’s. Under the rules you don’t have to pay it back. You just need to claim 1/15th of the total amount as income for that year. So each year I would need to claim $500 as earned income on my taxes. Just like if I had a part-time job.
I can imagine what you are thinking. This is great but I don’t have $7, 500 to put into an RRSP. The funny thing is neither did I. I borrowed the $7, 500 from a line of credit. I actually got a big enough tax credit from my other businesses to cover the $7, 500. So I paid off the borrowed money, plus I sill have the $7, 500 in the RRSP ready to come out when I buy the house. My wife did the same strategy and together our tax return just from this one strategy gave us about 30% of the down payment needed for an average priced house.
This is a very specific strategy that I have used. I understand that this may not work for everyone due to individual circumstances. The importance of this post is to understand that the government puts in place rules and programs that we can take advantage of. It is our job to manage our money and understand these rules, or at least pay someone to. Little steps can be taken to achieve a big goal. The “home buyers plan” strategy I have used is one small step taken to financial independence. I hope this helps you too.
If you would like basic information about RRSP’s and the Home Buyers Plan, watch for future posts in the “Personal Finance Basics” section. There, we will cover all the basic information about these, and other vehicles and how they work.
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Tagged with: how to manage money • manage my money • manage my money better • manage personal finance • personal finance basics
Filed under: Personal Finance
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What about the annual tax on the extra $500 that you will claim in the next 15 years on your tax return? Personally, I would pay it back in my RRSP, it’s still my money and it’s tax sheltered.