The malls are bustling with Christmas shoppers focused on creating enjoyment for one very important day of the year. But let’s not forget another very important date that is right around the corner: December 31. It’s a time to reminisce and also a time to look forward and tax plan for the future.
Anyone who believes they should wait until January 1 to create a tax strategy should think again. It’s important to get your finances sorted out before the year-end. Whether you are a business owner, self- employed or an employee, sorting out your tax situation before the year-end is important, especially if you want to take advantage of tax credits. Literally one day can mean the difference between a tax refund versus a tax debt for many in 2013.
Registered Educational Saving Plans: Contribute an annual amount of $2,500 per child to an RESP by December 31 and the government will give you a maximum grant of $500 of free education money for your child.
Registered Retirement Savings Plans: December 31 is the cut-off for 2013. However contributions made within the first 60 days of 2014 (up to March 1, 2014) can be used for the 2013 or 2014 tax year, depending on which is more tax advantageous. If you use the last paystub of the year with year-to-date earnings, you can draft your taxes early and determine what RRSP contributions to make in the first 60 days to receive a refund or owe less. If you are turning 71 in 2013, you can only make RRSP contributions up to December 31, 2013—not March 1, 2014.
Tax Free Savings Accounts: December 31 is the cut-off for suggested maximum contributions of $5,500 annually into a TSFA. Over contribute and there could be tax implications.
Charitable Donations: December 31 is the cut-off for donations which can be applied against 2013 taxable income.
Child Fitness/Arts Credits/ Daycare Costs: December 31 is the cut-off for deductions to be applied to reduce 2013 taxable income.
Considering cashing out investments to pay for post-Christmas debts? You may want to consider waiting until January 1, depending on your income tax bracket. In many cases the surrender of investments at year-end will get added to your annual reported income and can bump you into another tax bracket. This can cause a 2013 income tax debt, which is the last thing any of us want. Think before you cash out.
Have you moved this year? Don’t forget to notify employers (past and present), as well as other income source providers of the change of address. When it’s time to mail your tax slips, slips misdirected to an old address can hold up you processing your return and even hold up your much anticipated tax refund.
Finally, be tax smart. Research eligible tax credits which will help you reduce taxable income and generate greater tax refunds or, at the very least, make you owe less to the tax man.