The Top 10 Deductions Missed by Taxpayers Print  •  Close Click "Ctrl P" to print if your browser doesn't recognize the print command. No one really wants to pay more taxes than necessary, but many of us end up doing just that. Year after year, thousands of people pay too much in taxes by failing to take advantage of the deductions and credits to which they are entitled. Here are the ten often-missed areas to consider:

1. Equivalent-to spouse amount

Most taxpayers are familiar with the spousal amount (6,140 in 2000) for spouses with income under $615. But a lot of people don't realize that there is a similar credit for single, separated and divorced people who support a relative who lives with them. This could apply to a single mother with kids at home, or someone who supports an elderly parent. In order for you to qualify for the amount, the person you support must be related to you and must have income below $6,754. Children must be under 18 at some time during the tax year, unless they are mentally or physically infirm.

2. Childcare expenses

Where both spouses are working, or one is going to school either full-time or part-time, childcare expenses are deductible from earned income. This measure has also been adopted for Quebec income tax purposes. Childcare expenses are not limited to daycare fees. They can also include boarding school, summer camp and hockey school fees, as long as these expenses are incurred in order to enable you to work or attend school. Generally, expenses have to be deducted from the lower-income earner. There are exceptions that allow the higher-income earner to claim the deduction. For example, if the lower-income earner is at school full time, the higher earner may claim the deduction for the number of weeks the spouse attended school. Although the childcare deduction for Quebec is more or less identical to the federal deduction, Quebec allows, for 1994 and later years, a credit as high as 75% for low income families or as low as 26% for high income families. Not only does Quebec follow the federal exceptions regarding the eligibility of claiming childcare expenses by the higher-income earner, but for 1996 and later years, the lower-income earner operating a business or practicing a profession on a regular and ongoing basis would entitle the higher-income earner to make a claim for that period. This new exception was added to enable the claim for childcare expenses even if the business did not generate any profits or resulted in a loss. It should be noted that federally, lower-income earner refers to lower net-income earner, whereas for Quebec income tax purposes, lower-income earner refers to lower earned-income earner. You're allowed to claim up to $7,000 for each child under seven at the end of the year, and $4,000 for each child over seven and under 16. In Quebec, the limits are $5,000 and $3,000, respectively Children with mental or physical infirmities qualify for a $4,000 deduction; if you have a child who qualifies for the disability amount, you can deduct up to $10,000, starting in the 2000 tax year.. For federal income tax purposes, the total deduction is limited to two-thirds of your earned income, comprised of salary or net business income. However, this limit does not apply for Quebec income tax purposes.

3. Medical expenses

You can claim medical expenses, as a non-refundable tax credit, that are more than three per cent of your net income or $1,637, whichever is less. Married or common-law couples are allowed to pool their claims together. As long as the lower-income spouse is taxable, it makes sense to make this claim if three per cent of their net income will create a lower threshold. For Quebec income tax purposes, the ceiling of $1,641 no longer applies; it's just medical expenses in excess of three per cent of family net income, as opposed to taxpayer's net income. Family net income is equivalent to total income minus registered pension plan (RPP) and registered retirement savings plan (RRSP) contributions of both the taxpayer and taxpayer's spouse or common-law spouse. The tax benefit for medical expenses has been significantly reduced with the elimination of a $1,642 ceiling and introduction of family net income. To assist low-income persons, a new refundable medical expense credit, effective for the 1997 and subsequent taxation years, is available for both federal and Quebec income tax purposes. The credit is based on, but is in addition to, the medical non-refundable tax credit. Persons whose total net income is at least $2,500 are eligible. The credit is limited to a maximum of the lesser of $500 and 25% of the allowable expenses included in computing the individual's medical expenses non-refundable tax. The amount of the credit will be reduced by five per cent of the amount by which the family net income exceeds $16,069. If both spouses claim medical expenses individually on their tax return, they may both be entitled to this credit. Family net income is the combined net income of the individual taxpayer and the taxpayer's spouse or common-law spouse. For 1998 and subsequent taxation years however, Family Net Income for Quebec income tax purposes is equivalent to total income minus registered pension plan (RPP) and registered retirement savings plan (RRSP) contributions of both the taxpayer and the taxpayer's spouse or common-law spouse. Married or common-law spouses are allowed to pool their claims together. You may also claim the medical expenses that you have paid for any dependent child or grandchild of you or your spouse and/or any dependent parent, grandparent, brother, sister, uncle, aunt, niece, or nephew who are resident in Canada at any time during the year. However, the medical expense you may claim on behalf of the dependent must be reduced by 4 times the dependent's net income in excess of the basic federal amount -- $7,231. For Quebec income tax purposes, the medical expense you may claim is reduced by 2.9 times the dependent's net income in excess of the Quebec basic amount -- $5,900 . The medical expense adjustment (reduction) must be determined separately for each dependent. Should the reduction exceed the medical expense of the dependent, you have the option not to claim the dependent's medicals. The reduction does not apply to medical expenses of your spouse of common-law spouse. Some planning tips to consider: Premiums paid for medical coverage are deductible, including amounts you pay to an employer plan, as well as premiums paid for Blue Cross or Green Shield for private coverage, even if it's only to cover you for your two-week holiday down south. Ask your employer to give you a statement of what you paid for your medical plan. You don't have to file your claims on a calendar-year basis. Canada Customs and Revenue Agency allows you to choose any 12-month period ending in the year for which you are filing. This means that you should sort out your receipts on a month-by-month basis, and choose the period that will result in the highest yield for you. This is also something to keep in mind when you're planning medical expenses that are somewhat discretionary, such as new glasses, contact lenses or some types of dental work. If you can arrange to have major items like these fall within the same 12-month period, you will maximize your ability to deduct the expenses. Make sure you understand what types of expenses are deductible. The list is actually quite long, and includes items such as orthopedic shoes and hearing-aid batteries. If you're filing a return for an elderly parent, you should be aware that items such as incontinent pads are allowable, as well as a certain portion of nursing-home or retirement-home fees that relate to the nursing care provided. The retirement home will give you a statement that you can attach to the tax return.

4. Charitable donations

You get a federal tax credit of 17% for donations up to $200, and 29% for those above $200, to a limit of 75% of net income. For Quebec income tax purposes, the eligible amount of donations is entitled to the non-refundable tax credit rate of 22%. As with medical expenses, a married or common-law couple can pool their donations together. In this case, the tax savings will be the same regardless of which spouse makes the claim, assuming both are taxable. However, donations don't have to be claimed in the year they are made. In fact, they can be carried forward for up to five years. This can be worthwhile in the case of small amounts of annual donations. If the total donated is less than $1,000, it's often more tax-effective to carry the amounts forward and make a claim every two or three years, instead of having to meet the $200 threshold each year.

5. Carrying charges

Carrying charges include a variety of expenses incurred in order to earn income from investments: fees paid to rent a safety deposit box. interest paid to buy Canada Savings Bonds through payroll deduction.  interest on investment loans.  financial planning and investment counselling fees in some circumstances.

6. Dividend income

In the case of a married or common-law couple, one spouse can elect to transfer dividend income from the other spouse if doing so will create or increase the spousal credit for that person. On the surface, it doesn't make a lot of sense to transfer income from a low-bracket taxpayer to one in a higher bracket. But, with the transfer of dividend income goes the dividend tax credit, and this often makes a transfer worthwhile. Just remember, the election must be applied to all taxable dividends from Canadian corporations. If this election is available to you, calculate your return both ways to see which makes most sense.

7. Disability credits

Taxpayers filing returns for elderly parents should understand that, at some point, they may qualify for the disability credit. This is a non-refundable credit of $4,293 that is available to those with severe and prolonged mental or physical infirmity." This would include people with Alzheimer's who need help in order to live independently, as well as those with physical limitations. In order to receive the disability credit, the taxpayer's doctor must certify that they are eligible. Also, beginning, with the 2000 tax year, there is an additional amount of $2,941 that can be claimed for a child under 18 at the end of a tax year who qualifies for the disability amount. This amount is reduced by the expenses for childcare and attendant care that are more than $2,000 and claimed in the year for the child. The caregiver tax credit is a non-refundable tax credit that provides additional tax assistance to taxpayers providing in-home care for elderly or infirm relatives. This credit can reduce federal tax by up to $400 for individuals residing with and providing in-home care for a parent or grandparent born in 1935 or earlier, or a dependent child, brother, sister, niece nephew, aunt or uncle of you or your spouse 18 or older who is dependent due to mental or physical infirmity dependent and who had a net income of less than $14,047.

8. Pension income credit

Anyone who receives income from an employer pension plan (regardless of age) is entitled to claim a pension income amount of up to $1,000 per year (resulting in a tax credit of $170). If you're over 65, income from RRSPs, RRIFs and annuities will also qualify. In other words, at 65, your first $1,000 of RRSP income is basically tax-free. If you're not able to use the credit yourself, it can be transferred to your spouse. For Quebec income tax purposes, the non-refundable tax credit for pension income, the credit with respect to age and the living alone credit were individually subject to reduction of 15% of net income exceeding $26,000. As of 1998, the net income used to determine the eligible amount of these non-refundable tax credits will be net family income, determined as total income minus registered pension plan (RPP) and registered retirement savings plan (RRSP) contributions of both the taxpayer and taxpayers' spouse or common-law spouse. Instead of reducing each of the above non-refundable tax credits separately, as was done in 1997 and prior years, a single reduction, equal to 15% of the amount by which net family income exceeds $26,000, will be applied to all the credits attributable to the taxpayer and, if applicable to the spouse or common-law spouse, at the end of each year. The total eligible amount of these non-refundable tax credits may be shared between the spouses in the manner they decide.

9. Moving expenses

Whenever you move within Canada, your moving expenses could be tax-deductible. In all cases, you have to have earned income at your new location (moving somewhere to retire won't qualify, unless you work part-time or have some consulting income), and you have to move at least 40 kilometres closer to the new work (or school) location. Expenses that can be deducted include: hiring movers or renting vans to do it yourself, breaking a lease, furniture storage, meals and lodging for you and your family en route, and the costs of selling your home, such as legal fees and real estate commissions. Remember that these deductions also apply to students who are moving away from school to take a summer job, complete a work term in a co-op program, start a business or take on full-time employment. Expenses are deductible against current year income, or they can be carried forward (for one year only) if the money earned in the current year isn't enough to absorb the deductions.

10. Self-employment expenses

If you use part of your home to run a business, you can deduct a portion of the operating costs of your home. Let's say your home office takes up 10% of your total floor space. You can deduct 10% of your mortgage interest, property taxes, heat, hydro, water, home insurance and maintenance costs from your business income. You can't use these items to create a loss that could be deducted against other sources of income, however. Any expenses directly related to the business, such as supplies, travel and client entertainment, are deductible as well. But don't be tempted to set up a 'business' for the sole purpose of being able to deduct all sorts of expenses from your other sources of income -Canada Customs and Revenue Agency has a reputation for checking out sideline businesses to make sure they have a reasonable expectation of profit. Your home office can be a segregated area or room that is devoted exclusively to the use of the business. However, if you are using a guest bedroom you may still qualify, but you must prorate the portion of time that it is used as your office. For example if your guest bedroom is 10% of the floor space of your home and you use this as your office 60% of the time, then your claim would be for 60% of 10% of your heat, hydro etc. Next time you complete your tax return, check through this list to see if you can cut your tax bill. Copyright 2003 Microsoft Corporation. All rights reserved. MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.