December is in full swing and although we are focused on all the festivities of the holiday season, don’t forget to review your finances and get the most out of your tax savings opportunities. This year, Cleo Hamel, Senior Tax Analyst for H&R Block Canada offered some great tax strategies to consider before year end:
Review your stock portfolio.
The markets were very volatile in 2011 but many people are still facing capital losses on their investments from previous years. It is a smart strategy to review your portfolio before the year end to see if you can find a tax advantage in taking a loss or cashing in a gain. Capital losses can be carried back three years or carried forward indefinitely. This is another year for opportunities with tax loss selling.
Check your taxable income
If you have cashed in some RRSPs, sold an investment property or received a lump sum pay out from an employer, you may want to do a rough calculation of your taxable income. It's important to understand the marginal tax brackets and your marginal tax rate as well as your average tax rate. All of these elements can impact your tax payable and you may be facing a tax bill. There may be ways to reduce your bill but your strategies will be limited after December 31.
- EI Benefits: EI claims may have gone down in 2011 but taxpayers collecting EI may want to review their tax obligations before the end of the year. In most cases, the tax withheld at source from EI benefits is usually insufficient to cover their actual tax liability when the benefits are added to other income earned during the year.
As of the 2006 budget, Canadians can donate a publicly listed stock, bond or mutual fund and pay no capital gains and still receive a tax receipt for your donation.. Prior to May 2, 2006, the tax rate on donated securities was half the normal capital gains rate. This is a great way to save tax and give to a charity.
Pooling medical expenses
If you have an expensive trip to the dentist coming up, you may want to consult a calendar. Medical expenses can be claimed in any 12-month period ending in 2011 so it could be beneficial to try to fit known medical expenses into the same 12-month period in order to maximize your claim. You don’t actually have to go to the dentist but if you have an outstanding amount, try to pay the bill by the end of the year. Remember, medical expenses are reduced by a percentage of your income. So the greater their dollar value, the likelier it will be that you can make a claim.
Save for Education
With tuition costs rising, many parents and grandparents want to take advantage of the government’s Canada Education Savings Grant (CESG). You must make a contribution to your child’s Registered Education Savings Plan (RESP) before December 31. The lifetime RESP contribution limit is $50,000 with no annual contribution limit. The maximum RESP contribution that qualifies for the CESG is $2,500, providing a grant of $500. There are additional supplements for lower-and middle-income taxpayers.
Making a difference
If you want to claim a charitable donation on your 2011 tax return, you have to make it before December 31. If you have already made more than $200 in donations in 2011 it will also be worth a 29 percent federal credit instead of the 15 percent for donations under $200. When combined with the provincial credits, the savings can add up.
Moving to start a job in a different province?
Check the provincial tax rates before deciding the moving day. You are subject to provincial tax in the province where you reside on December 31. So if there is a substantial difference in the tax rates, you may want to either speed up or defer the move.
Trying to find all your slips the day before the tax deadline is never a good thing. If you haven’t already, start an envelope or folder to hold all your tax slips and receipts. You can still procrastinate until the last day but at least all your slips will be together.