My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, June 10, 2013

Why Spend Your Energy Being Frugal? Just Tax Plan!


This past February, I had some fun with a top ten list (look below the sports agent's fees post) on why you should vote for me in a blogging contest (thanks to all of you who helped vote me into the second round of the contest!). In this list I took some shots at frugal blogs and got some emails from furious Frugalites asking me what I had against frugality and frugal blogs? I responded to a couple of emails saying that I don't have anything against frugal bloggers or frugal blogs in particular: my issue is that I think people are far too focused on cost savings,
as opposed to increasing income and/or minimizing income taxes.

As per this tongue and cheek blog I wrote titled “Old and Not Thrifty”, I admit I am not thrifty, although my wife counterbalances my lack of frugality with her ability to get a great deal. Notwithstanding my personal spending habits, any long-time reader of The BBC will know I often write about how important it is to budget and spend within your means and I reiterate this now – always be cognizant of what you are spending. However, in my opinion, if you budget well and are frugal, I think you reach a point of diminishing returns. So you save $12 on a cheaper toaster, or $1.29 on a box of cereal. Yes, those are savings, but they are immaterial in my mind once you have already proven to be a disciplined spender. Why not put all that energy into producing more income or saving taxes?

Before you start sending me hate mail, this post is not intended for those whose financial situations are such that frugality is a necessity, but for those of moderate or greater income who seem to get a little carried away with their frugal efforts when they could be making a bigger change in another manner.

I can already hear the cries of “Mark don’t give me the you should earn more lecture. I am stressed out as it is with my current job and life.” So, I won’t tell you to consider turning a hobby or an expertise into a side business or to spend some energy creating a case for a raise from your current employer or to spend your energy looking for a better job opportunity. Nope, I am going to give you some lazy tips from my past blog posts to save you significant money in taxes so you won’t have to worry about saving money on the daily fresh fish special (if you call a fish floating with one gill above the water, fresh).

I have reviewed my past blog posts to unearth three effective if not fairly effortless ways to increase your cash-flow:

1. Capital Loss Planning

I have written several times about capital loss planning (see the third paragraph from the bottom of the post, “Creating Capital Losses – Transferring Losses to a Spouse Who Has Gains) where you have a capital gain and your spouse has an unrealized capital loss. If your situation meets the criteria in my post and you have, say, a $10,000 loss and your spouse has a gain greater than $10,000, you could potentially save almost $2,500 by undertaking this form of tax planning. That is a lot of cheap rolls of toilet paper. The only caveat for this tip is that you should probably get some professional advice to ensure you do not get tripped up by the technical rules with superficial losses.

2. Form T2200

How about spending your energy asking or prodding your company to provide you with a T2200 Form that allows you to claim your employment expenses. Many employees are shy about requesting these forms and many employers are reluctant to issue these forms (because of the administrative hassle). If you incur expenses such as automobile costs, telephone or home office costs and are not reimbursed or only partially
reimbursed, ask or convince your employer to issue this form so you can deduct any of your employment related expenses on your 2013 personal income tax return. Depending upon the amount of employment expenses you have been personally absorbing, you may save enough for a vacation, which to me is a lot more exciting than saving some money on steaks that expire that day.

3. Income Splitting with Your Spouse

Income splitting can be as simple as spending the higher income spouse’s money on living costs and using the lower income spouse’s salary to invest, so any investment income is earned by the lower tax rate spouse. Alternatively, income splitting can be as sophisticated as utilizing a family trust or a prescribed loan, the rate is currently only 1%.

I have just briefly touched on a few simple opportunities to save money through tax planning. My point? Frugality takes a lot of time and effort, whereas many tax planning strategies require only a few hours of consideration. Even if you require an hour of time from an accountant to review your plan, the tax savings can be substantial.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.