Boy, it seems like the year-end is suddenly coming at us like a runaway train.
We are busy reviewing all of our client accounts and CRA records, with an eye to uncovering opportunities to offset gains or recover taxes paid on gains in past years.
This is all while we also plan for their Dec. 31 annual reports and the annual update on their financial plan and retirement income projections. It's a busy time, as my team will tell you (and someone mentioned there's a big holiday coming up that needs preparation, as well).
So how do you reduce your taxes for 2013?
First of all, if you have potentially significant tax claims or complicated issues, consult your tax adviser now. As with many things, you can't go back after the deadline.
With investments, you want to minimize tax on capital gains. Prepare by finding out from your investment supplier the total of your realized capital gains for 2013 on sales of investments, and the expected year-end distributions on any mutual funds you own.
Half of the net of gains over losses is taxable in the current year. However, you can offset gains by selling investments that are in a loss position.
Net losses realized in 2013 can also be carried back to offset gains claimed in any of the previous three tax years, by filing a T1A Request for Loss Carryback when you file your 2013 return. This can actually get you back taxes that you paid in the past, which is particularly satisfying.
Ask your investment adviser for a realized capital gains report for the year-to-date, to evaluate the need to realize losses. Then compare the market values of your current investments to the book values, to identify potential losses to be realized by selling.
If you still want to own the stock or fund, you can buy it back 31 days later. An alternative is to buy a similar investment that is expected to act the same way in the near future.
Donations to charitable organizations made before Dec. 31 will create a combined federal and provincial credit of about 45 per cent (after your first $200 of annual donations), so give generously this month.
Donating investments that have capital gains in-kind to charities will get you the donation credit, while exempting the capital gain from tax.
Make any planned withdrawals from your TFSA (tax free savings account) before Dec. 31. This would mean you could pay it back into the plan in 2014. If you defer until January to withdraw, then you must wait until 2015 before re-depositing.
It's the same deadline for 2013 contributions to registered education savings plans and registered disability savings plans, both of which can benefit from government grants. The RDSP is limited to people who qualify for the disability tax credit.
People who turned 71 in 2013 and have RRSP contribution room have a Dec. 31 RRSP deadline (unless they have a younger spouse), as RRSPs must be converted to RRIFs before year-end. If these people wait until the usual RRSP deadline of 60 days after year-end, they will be prohibited from contributing, as it will be the year in which they turn 72.
Dec. 31 is the annual deadline for 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, repayments to your corporation that might otherwise become taxable, and several other tax-related expenses.
Deductible business expenses, which mostly relate to business owners and commission salespeople, must generally be incurred within the year to be deductible.
If you can deduct depreciation on capital items, such as office equipment or a car, buying before year-end allows you half of the usual full year capital cost allowance (depreciation deduction), because it is your year of purchase for the item. If you wait until January, you will still only get half the regular rate, but for all of 2014.
So take 20 minutes this weekend and review your situation for these opportunities. It may pay off big.
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Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.
David Christianson, BA, CFP, R.F.P., TEP, is a financial planner and adviser with Christianson Wealth Advisors, a vice president with National Bank Financial Wealth Management and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.