I don’t have all my tax slips and receipts in my possession for tax year 2023, but I have enough of the ones that make the most impact on my tax return. Over the weekend, I entered all the information I knew into some tax software.
Without any major changes to my financial situation, I still owe the government over $4200 in taxes. For someone who makes millions of dollars a year, that amount might be trivial for a tax bill, but it’s a decent amount of money for me. The only way I can change the situation is to contribute more to my RRSP. I only wish there was some favourable ratio to the amount I owe with the amount I contribute. Unfortunately, in my current situation, it appears that for every dollar I owe, I need to contribute about two dollars to my RRSP to offset that dollar. So, to essentially break even, I need to contribute $8000.
The question facing me now is, do I want to spend $4200 and never see that again, or shuffle away $8000 for a later date? There’s pros and cons for both. If I didn’t have $8000, I’d either have to pay the $4200 somehow or then entertain borrowing $8000 for an RRSP loan. If I contribute the $8000, I won’t see that money for a while, since it’s normally earmarked for retirement. Or do I look at the tax bill as $4200 gone but about $4000 still in my bank account, rather $8000 gone in total?
Maybe I should just bite the bullet and contribute the whole $8000 to my RRSP. One reason for doing so is that the RRSP I’d contribute to is an investment portfolio that I have set up through work. The returns on my portfolio have been quite impressive. In the last three months of 2023, the return on that portfolio was over 10%. Other than the money I spent on my apartment, the money invested there has been one of the best financial choices I’ve made. So in all likelihood, if the $8000 goes in there, it will almost certainly be worth more than $8000 in just a few months.
I recognize that I am very lucky to just have a liquid $8k available to me. This is a large sum of money that perhaps other wouldn’t have on hand this quickly. I am leaning towards just using it to contribute to my RRSP. First, it saves me from having to give the government more money. Second, barring any crazy stock market shenanigans, it should begin to make more money almost immediately. Averaged over time, it will undoubtedly be worth more than $8000 in a year or two.
One more final thing that this has made me think about. I feel like I should perhaps visit a tax professional because there’s gotta be some other tax shelter that I haven’t considered other than RRSPs. Like how do rich people get away with not paying taxes?