Year end tax tips and financial housekeeping
Jingle bells…jingle bells…jingle all the way…
Geez, right around the corner isn’t it?
The holiday season signals the end of something old and the beginning of something new. It’s a great time of year to spend time with family and friends, after you check off these year-end tax tips and complete these financial housekeeping chores.
Realize capital losses – I’ve sold some investments over the years in my taxable account to offset some capital gains. I believe “selling losers” can be a good tax management strategy, it can make great sense if you reported capital gains during the year or in recent years. You can read up about net capital losses in other years here.
Make charitable donations – We contribute to a few charities throughout the year and this year was no exception. We consider ourselves very lucky and want to help others that are less fortunate or in need. A reminder you have until December 31st to make your charitable donations to qualify for this tax year.
Get your small business income and taxes organized – Running My Own Advisor takes some work but there are some benefits as well. I’ll be looking at tallying some of the following in the next few weeks to review tax implications for this year:
- Business-related meals and travel.
- Mortgage interest.
- A portion of the property taxes.
- A portion of the heat, hydro and utility bills.
Review your insurance – I recently got a letter from my home and auto insurance company that indicated my premiums for home insurance are climbing higher. I’m going to look into what’s going on and negotiate where I can. I suspect it has to do with our property value moving higher over the last year.
Revisit your portfolio – Asset allocation is important (the mix of stocks, bonds, real estate and other investments) but investors often overlook asset location; what investments go where. Disregarding what should go where can be costly from a tax perspective if not done properly.
For example, I keep U.S.-listed dividend paying stocks and Exchange Traded Funds (ETFs) in my Registered Retirement Savings Plan (RRSP) only.
U.S-dividend paying stocks and ETFs do not receive any favourable tax treatment from our Canadian government. By keeping U.S. stocks inside my RRSP I avoid paying any withholding taxes. This means I keep Canadian dividends stocks spread around other accounts, including a non-registered one for the friendly dividend tax credit.
Set some new financial goals – Every year we post a few of our key financial goals and next year will be no different. Stay tuned to read those.
Contribute to your RRSP – Although you usually have until about March 1 next year to make a contribution to your RRSP consider putting more money into this account before that date – to maximize contributions. Recall RRSP contributions will entitle you to a deduction on this year’s tax return. It’s a nice government loan that you can grow tax-deferred.
Make TFSA withdrawals – We consider our Tax Free Savings Accounts (TFSAs) like another retirement account (the RRSP) so we don’t touch the money that goes into it. We make contributions every new year and let the money grow tax-free. However, if you’re using your TFSA as truly a saving account, and you need the money soon, consider making TFSA withdrawals before the end of December. If you withdraw funds from your TFSA before the end of this year you’ll be entitled to re-contribute the same amount beginning January next year.
Review your will – Times flies when you’re having fun but it’s very important to ensure your wishes and financial affairs are always up to date for your loved ones. Review your will. If you don’t have a will for your family, don’t be an a$$ and get one already.
Withdraw RRSP or RRIF funds – We remain in our asset accumulation years but if you’re retired, or you have little to no income this tax year, consider withdrawing funds from your RRSP or RRIF to minimize the tax hit on these tax-deferred accounts.
Get the pension credit – Government rules dictate you can get a pension credit to offset tax on the first $2,000 of eligible pension income annually; income that also includes any withdrawals from an RRIF if you’re 65 or older. Don’t forget this credit!
Convert your RRSP to a RRIF – If you turned age 71 this year, you may wish to establish a RRIF from your RRSP. One of the benefits of the RRIF? You can keep the same assets inside your RRIF that your RRSP has, when you move assets over.
Year-end provides us all with opportunities to revisit the past and look forward. I hope these year-end tax tips and financial housekeeping reminders provide you with opportunities to save more, invest more, so you can prosper well into next year and beyond.
What year-end financial plans do you have?