December has always been one of my favourite months, not only because of the Christmas season but because it affords the opportunity to look back over the past year and look ahead to a new one.
The end of the calendar year is a good time to start getting your taxes in order, even though you won’t actually file your return until next April.
One of the first things to do is to start getting all your tax slips and receipts together.
“Trying to find all your slips the day before the tax deadline is never a good thing,” said Cleo Hamel, senior tax analyst with H&R Block.
“If you haven’t already done so, start an envelope or folder to hold all your tax slips and receipts. You can still procrastinate filing your return until the last day, but at least all your slips will be together.”
The end of the year also is a great time to review your stock portfolio.
The financial markets gained some ground in 2010, but many people are still facing capital losses on their investments from previous years.
“It’s 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,” Hamel advises. “Capital losses can be carried back three years or carried forward indefinitely.”
Selling investments also gives you a good chance to rebalance your portfolio to make the most of your money in 2011. But it’s important to remember that Canadian stocks and many other securities must be sold at least three business days before the end of the year, so the transaction settlement date occurs by Dec. 31.
Pay all items that qualify for tax breaks, such as tuition fees, medical expenses, child care bills, child support payments and tax-deductible fees for legal, accounting and other services. Most financial and investment transactions that qualify for credits or deductions on your 2010 tax return must be made before Dec. 31.
If you have cashed in some of your registered retirement savings plan, 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, because all of these can impact the amount of tax you pay and you could end up facing a big tax bill.
Pooling medical expenses is another year-end tax strategy.
If you have some heavy dental or medical bills coming up, you may want to consult a calendar. Medical expenses can be claimed in any 12-month period ending in 2010, so it could be beneficial to try to fit the known 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,” Hamel advises. “Remember, medical expenses are reduced by a percentage of your income, so the greater their dollar value the more likely it will be that you can make a claim.”
Pay any outstanding income taxes. For taxpayers who are required to remit quarterly income tax installments to Canada Revenue Agency, Dec. 15 is the deadline for the last payment of 2010. If you don’t pay on time you could face penalties and interest.
If you contribute to a registered education savings plan on behalf of a child or grandchild, making the contribution before year’s end will ensure the plan qualifies for the annual Canada Education Savings Grant. You’re entitled to 20 per cent on your yearly contribution to a maximum of $500.
If you don’t yet have one or if haven’t already put in your yearly maximum of $5,000, open up or top up your tax free savings account. The TFSA is a great way to earn income or interest tax-free. Remember, you can only put in $5,000 a year, but it carries forward to future years. If you make a withdrawal, however, make sure you understand the consequences and when you can replace the funds.
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors. He can be contacted at boggsyourmoney@rogers.com.