Many people ask me: How can I pay the least amount of taxes every year.
The best way to pay $0 zero taxes on your investment is by putting everything you can in your Tax Free Savings Account (TFSA). It’s all in the name “Tax Free!” This means that any money you earn in this account is 100% tax free.
One of my financial habits is, on January 1st of every year, to contribute the maximum allowed the law into my Tax Free Savings Account.
Your initial contribution room is limited by the number of years since 2009 that you’ve been 18 or older, and the contribution limits of those calendar years. The maximum contribution allowed for 2023 is $6,500.
For those who have not yet opened TFSAs, your accumulated contribution room could be as much as $88,000 next year. Making some use of it would be a good resolution for 2023.
5 reasons to contribute to a Tax-Free Savings Account (TFSA) in 2023
- Tax-free growth: Earnings on investments held within a TFSA are not subject to tax, so you can potentially earn more on your investments over time.
- Flexibility: You can contribute to a TFSA at any time and withdraw the funds at any time without penalty, making it a flexible savings option.
- Accessibility: You don’t need to meet any income or employment requirements to contribute to a TFSA, making it an accessible savings option for all Canadians.
- Use it for a variety of purposes: You can use a TFSA to save for a variety of financial goals, such as saving for a down payment on a home, funding your retirement, or saving for a major purchase.
- Contribution room carries over: If you don’t use your full contribution room in a given year, it will carry over to future years, allowing you to potentially save more in the long run.
Limitations of investing on your Tax Free Savings Account
For me, the only limitation is that we can not put more money into our TFSA. If I had it my way, I would put 100% of my money into my TFSA and never pay any taxes on my investment earnings.
But I can’t complaint much, right now I have over $100,000 in my TFSA. If I earn 10%, that would be $10,000 earnings without paying any taxes.
And you?
Are you contributing the maximum allowed into you TFSA? if not, what’s holding you back?