'Tis this season to maximize deductions

As another tumultuous year draws to a close, let's try to save you some tax money for 2011.

Dec. 31 is the deadline for deductible business expenses, which mostly relates to commission salespeople and to business owners. Corporate tax rates are going down in 2012, so it makes sense to accelerate deductible expenses in 2011, if the corporate year end is Dec. 31.

That's also the last day for 2011 contributions to registered education savings plans and registered disability savings plans, which attract government grants. (The RDSP is limited to people who qualify for the disability tax credit.)

Dec. 31 is the RRSP deadline for people who turned 71 in 2011 and have RRSP contribution room (unless they have a younger spouse). If they wait until the usual deadline for RRSPs of 60 days after year end, they will be prohibited from contributing, as it will be the year in which they turn 72.

If you plan to make a withdrawal from your TFSA (tax-free savings account) in the next six months or so, I suggest you consider doing it before Dec. 31. This would mean you could pay it back into the plan in 2012. If you defer until January to withdraw, then you must wait until 2013 before redepositing. If it's your plan to withdraw this to cover your holiday credit card bills, then withdraw funds from the TFSA now.

(By the way, last week I mentioned contributing existing investments into a TFSA to shelter the investment income. Note that the contribution of stocks or equity mutual funds is a deemed disposition, which may result in a taxable capital gain. Unfortunately, any capital loss is disallowed on a transfer in-kind. Realizing a loss requires a sale of the investment, and a subsequent contribution of cash.)

Alimony and maintenance payments, medical expenses, child-care expenses, child fitness and artistic activity fees, public transit passes, moving expenses, political contributions, investment counsel fees and safety deposit box rental fees, interest on inter-spousal investment loans, repayments to your corporation that might otherwise become taxable, and several other tax-related expenses must all be paid by Dec. 31.

Minimize tax on capital gains

The deadline is even sooner for you to sell investments that have lost money, in time to claim the capital loss in 2011. You might want to do this to offset capital gains you have realized in 2011 or capital gains distributions you might be receiving from mutual funds you own.

As well, if you finish up 2011 with more capital losses than capital gains, you may be able to apply those net capital losses to any of the last three tax years in which you paid tax on net capital gains. You do this by filing a T1A Request for Loss Carryback when you file your 2011 return.

Ask your adviser for a realized capital gains report for the year to date to evaluate the need to realize losses, and then compare the market value of your investments to the adjusted cost base (ACB) or book value shown on your statement. This will tell you of your potential losses to be realized by selling. You have a likely sale deadline of Dec. 23 to have your trade (investment sale) settle in 2011 -- check with your adviser.

If you still want to own the stock or fund, you can buy it back 31 days later. Any sooner repurchase will prevent you from using the capital loss claim. An alternative is to immediately buy a similar security, which is expected to perform in a similar fashion.

Give generously

Donations reduce your taxes by about 27 per cent of the first $200 you donate each year, and 44 per cent of all donations above that amount. Dec. 31 is the donation deadline for 2011 claims. If you are married, I suggest that you claim both spouses' receipts on one tax return, so that you deduct all but $200 of donations at the higher rate.

That's a pretty good list, but does not include absolutely everything. Check my blog at www.DavidChristianson.com for more detail, and some additional items.

If you have potentially significant claims or complicated issues, consult your tax adviser immediately. With many things, you can't go back after the deadline.

Happy deducting!

David Christianson is a fee-for-service financial planner with Wellington West Total Wealth Management Inc., a portfolio manager (restricted).

dchristianson@wellwest.ca

Republished from the Winnipeg Free Press print edition December 9, 2011 B13