More year-end tax tips for investing

Last week, I talked about some key strategies with a December 31st deadline. This week, let’s continue with a few more strategies.

Tax-loss selling.

Stock markets have been pretty choppy this year. Depending on when you bought stocks or mutual funds, you might be up or you might be down. 2007 might be a good year to re-visit tax-loss selling.

Tax-loss selling is simply where you sell investments at a loss so that you can utilize the loss to save money on taxes. You must keep in mind that capital losses can only be deducted against capital gains and not other sources of income. Tax losses can be carried back 3 years to offset past gains. But you must apply losses against gains in the current year first but any excess can be carried back.

Make sure you really want to sell these investments. If you are thinking about buying back these same investments, you must be careful of the superficial loss rules which require that you bought the investment at least 30 days prior to the sale or that you do not reacquire the investment within 30 days of the sale.

Tax-loss selling is simply a tax deferral strategy. You will have to eventually pay the tax. Tax deferral is a good strategy because you pay the taxes later, which means you have more money to compound and grow in the meantime.

Tax-loss selling can be very beneficial from a tax standpoint but every financial strategy has good points and bad. Tax-loss selling can be very complicated. Don’t be afraid to get help from your accountant or financial advisor before you do anything.

RESP contributions.

Unlike the RRSP deadline, which is 60 days after the end of the year, the RESP deadline is December 31.

RESPs are an attractive way to save for your children’s education because of the Canada Education Savings Grant (CESG). Last year, the government put in 20% in grants on the first $2000 deposited to the RESP. This year, the government will still pay 20% but now up to $2500 of contributions.

If you miss the December 31st deadline, you can make up the contribution in a future year but you can only catch up one year at a time and qualify for the Canada Education Savings Grant (CESG). In other words, if you missed making a contribution this year, next year, you could contribute $5000 into the RESP and get a $1000 CESG.

The timing could not be better. An RESP may make the perfect Christmas gift this holiday season.

Individual expenses

Many payments for tax purposes must be made by December 31st to qualify for the 2007 tax year. Items like moving expenses, charitable donations, medical expenses, and childcare expenses are key expenses that need to be made before the end of the year.

One item that is new for 2007 is expenses for the Children’s Fitness Tax Credit. The program is designed to encourage children to participate in eligible fitness programs and will allow parents to claim a maximum of $500 per year for eligible fees paid for each child who is under 16 at any time during the year.

According to CRA, don’t forget to ask for a receipt. Starting in 2007 you will need to collect receipts from organizations providing eligible programs of physical activity in which your child is enrolled. The organizations will determine the part of the fee that qualifies for the tax credit. You will not need to submit receipts when you file your tax return, but you must keep them in case they ask for verification. Receipts should be kept for six years.


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