With the end of the year approaching, there are some financial considerations to keep in mind and proactively look at in the present time to maximize future gain. Let’s consider those financial planning tips you don’t want to ignore…
Top up TFSAs
Introduced in 2009, Tax-Free Saving Accounts (TFSAs) give every Canadian resident age 18 and older the opportunity to invest $5,000 per year tax-free. In 2013, the limit was increased to $5,500. By 2013, a couple could save a combined $51,000 and not pay any tax on the investment earnings. Top up TFSAs now and then make your 2014 contribution on January 1st. Students, who are 18 or older, can withdraw $5,000 from their RESP each year and contribute the money to a TFSA. The funds grow tax-free and can be used for any purpose in the future.
Crystallize capital losses
Do you have some shares that would produce a capital loss if they were sold before the end of the year? Even if you want to hold onto these shares, consider selling them to crystallize the loss for tax purposes (you can repurchase the shares after 30 days). Capital losses can be applied against gains reported in the previous three years or carried forward indefinitely. You will need at least three business days to settle the trade, so don’t wait until the last minute.
Make charitable donations before December 31st
Make all of your planned charitable donations before December 31st in order to maximize your 2013 tax credit, as the more you give, the bigger the tax credit you can claim (maximum donation is 75% of your annual net income). The first $200 in eligible donations gets a 15% federal tax credit and anything more gets a federal tax credit of 29% (note: provincial amounts vary). If you are making a donation for the first time this year, you can also take advantage of the First-Time Donor’s Super Credit. If you give online, you can usually donate right up to December 31st and get a tax receipt for the 2013 tax year. When donating by mail, be sure to do it earlier. If you have shares with unrealized capital gains or if you have exercised stock options, eliminate the tax liability by donating the shares in-kind to your favourite cause. There’s no tax on capital gains associated with shares given to charity and the maximum donation is up to 75% of your net income.
Prepay expenses eligible for tax credits
There are plenty of tax credits to capitalize on – from children’s activities and transit expenses to tuition costs and medical expenses. Arrange to prepay some of these before the end of the year to claim a bigger credit.
Maximize the effectiveness of RESPs
If you are investing in a Registered Education Savings Plan (RESP) to save for a child’s education, make sure you take full advantage of government grants and tax-deferred growth by earning the maximum grants each year. An annual contribution of $2,500 per eligible child will result in $500 in grants from the federal government, possibly more depending on family income and province of residence. If your child turned 17 in 2013, and you have been making RESP contributions for them all along, this is the final year for earning government grants.
Age 71 this year? Convert RRSPs to an income option
Your Registered Retirement Savings Plan (RRSP) must be converted into an income option, such as a Registered Retirement Income Fund (RRIF) or annuity, by December 31st in the year you celebrate your 71st birthday. When setting up a RRIF, consider electing to base the payments on the age of your spouse, if younger, to maximize tax deferral. If you are still working, make a final contribution to your RRSP before you convert.
These articles are for general informational purposes only. Please obtain professional advice before taking any action based on this information. No endorsement or approval of any third parties or their advice, information, products or services should be implied by any references to third parties contained in any article. Trademarks cited in these articles are the respective properties of their owners.