In 2022, Canadians will be able to take advantage of several new tax deductions and credits. Some of these include the Children's Fitness Tax Credit, the Public Transit Tax Credit, and the Volunteer Firefighter's Tax Credit. In this article, we'll take a closer look at these tax breaks and what you need to do to take advantage of them.
What Is The Difference Between Tax Deductions and Credits?
Tax deductions and tax credits are two different ways the government encourages taxpayers to take specific actions. The deduction reduces the amount of your income subjected to tax, while a credit reduces the amount of tax owed.For example, suppose you have an income of $50,000 and qualify for a $2,000 deduction. This type of deduction would reduce your taxable income to $48,000. If you are in the 25% tax bracket, this deduction will save you $500 in taxes ($2,000 x .25).On the other hand, suppose that you have an income of $50,000 and you qualify for a $2,000 credit. This credit would reduce your tax bill by $2,000. Even if you are in the 25% tax bracket, this credit will save you $2,000 in taxes ($2,000 x .25).As you can see, a deduction reduces your taxable income, while a credit reduces your actual tax bill. In general, credits are more valuable than deductions because they can save you much more money.Now that we've explained the difference between deductions and credits, let's look at some of the new deductions and credits available in 2022.
The Public Transit Tax Credit
The Public Transit Tax Credit is available to taxpayers who use public transit to commute to work or school. The credit is worth 15% of the cost of eligible transit passes, up to a maximum of $225 per month. To qualify for the credit, taxpayers must keep receipts for their transit passes or tickets.
The Volunteer Firefighter's Tax Credit
The Volunteer Firefighter's Tax Credit is available to firefighters who perform at least 200 hours of volunteer service per year. This credit is worth up to $3,000 per year. To qualify for the credit, firefighters must provide proof of their volunteer service and that they have completed an eligible training program.
As you can see, some new deductions and credits will be available in 2022. If you think you might be eligible for any of these, speak to a qualified tax professional. A professional accounting firm in Toronto or any other city will be able to help you determine if you qualify and how to maximize your savings.It is an exciting time for taxpayers in Canada as the government introduces new measures to help save money. Always be sure to stay up-to-date on all the latest changes so that you can take advantage of them come tax season. Contact us for more details.