Rebooting Year-end Tax Planning Tips

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When I was a financial advisor, I use to contact my clients with some year-end tax saving ideas. As a writer of a financial blog, I decided to remind readers that now is a good time to review your tax situation. Holiday season is just around the corner, you are going to be busy visiting with family & friends and Christmas shopping.

You will be glad during tax filing season that you planned ahead! You could reduce your tax bill or generate a bigger tax refund. I updated a similar post that I wrote last November and added some new tax saving tips.

Tip 1 – Add up your medical bills from this year and compare them to last year. If you have spent less, you may want to reschedule your dentist appointment from early January to December. Do you need new eyeglasses or hearing aids then buy them now. Planning a winter vacation that requires medical shots, get them ahead of time.

Tip 2 – Add up your charitable donations and compare them to last year. If you have donated less or nothing at all, now would be a good time to be generous. Wealthy people donate stocks, ETFs and mutual funds that have a capital gain instead of money. They don’t have to pay any tax on the gain and the full amount is tax-deductible creating a bigger tax deduction.

Tip 3 – Get out your lasts year’s tax return and see if this year’s income will be higher than last year. Will you be in a higher tax bracket? If yes, an extra contribution to your tax-deductible retirement account could generate a bigger tax saving. (Plus stock market returns have been known to be higher from November to April) If you are retired and your income is lower than last year, consider withdrawing a little extra from your retirement account and put it into a tax-free account.

Tip 4 – Have you sold any investments in 2015 that will generate a taxable capital gain?  Do some tax loss selling of investments that are underwater to offset the capital gains. In Canada, a capital gain loss can be carried back three taxation years to offset capital gains incurred in that year. You can always buy them back later. (You will have to wait 31 days to re-buy to avoid “superficial loss rules”)

Tip 5 – Postpone selling your investment winners in non-registered accounts until January to avoid paying tax in April. If you have losses, consider selling some winners and buy them back again to increase your cost base.

Tip 6 – Look for ways to legally split income by transferring income producing assets to family members that are in a lower tax bracket. For example, in Canada you can contribute to your spouses’ retirement fund and claim the deduction.

Tip 7 – Top up education savings plans for your children or grandchildren to ensure your plan gets any eligible government grants. (Canadian grants stop the year in which the child turns 18)

Tip 8 – Getting a big year-end bonus? It may be better to postpone getting it to January or have your employer deposit the bonus directly into your retirement account!

Tip 9 – Check to see if there are any changes to tax laws that could affect your tax return for 2015 & 2016. There could be some new tax deductions or some deductions that could be eliminated. (In Canada, the Family Tax Cut allows families with children to split their incomes for a tax credit maxing out at $2,000.00)

Tip 10 – Small business owners should go over their account receivables and make a list of potential bad debts. Consider writing off any bad debts that are more than 120 days overdue before tax season ends.

According to the Fraser Institute, tax freedom day in Canada was June 10 this year. The average Canadian family with two or more people will pay 43.7% of their annual income in taxes. The tax man is happy to pick your pockets for more money. It is up to you to legally avoid paying them too much. Remember, rich people stay wealthy because they can afford the best tax specialist to reduce the amount of tax that they pay.

Do you have any year-end tax planning tips?

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