Tax planning should be seen as an annual affair. But, as the year's end approaches, that's when many accountants believe it is a perfect time to sit down and review any, if not all, personal finances you have.
It's always best to take advantage of any planning opportunities available to you before the deadline. Unsure of where to begin? Here are a few year-end tax tips you might wish to consider:
1. Take Advantage of Loss
Suppose you are someone who has capital gains this year, otherwise known as you sold an investment that cost more than you paid while still holding the securities with capital losses. In that case, you should consider selling the securities to offset the capital gains.
By doing this, you are replacing your sold investment with low value and replacing it with a similar investment to offset the capital gains tax liability. You should also consider deferring your investment sales to next year if you believe your tax rate will be lower than the previous year.
To do this, it's always best to talk to your financial planner or bank to see if these strategies are the right step for you to save some money.
2. Maximize TFSA Contributions
While this year's Tax-Free Savings account, otherwise known as TFSA contribution limit, is around $6000, you possibly could have some leeway if you had yet to maximize your contribution amount in earlier years.
If this is your first contribution, it's possible to contribute over $70,000, that's if you're over the legal age of 18 and have been a Canadian resident since 2009, when TFSA was founded.
It's also good to mention that withdrawing any money from your TFSA account is tax-free.
3. Paying Tax-Deductibles
This means to pay off all investment management fees you may have, such as childcare expenses, medical bills, accounting fees, and alimony.
By paying your tax-deductible, otherwise known as an expense that individuals or businesses can subtract from their gross earnings when completing tax forms so that the cost of the deduction reduces the reported income, many can reduce the amount owed at the end of the year.
4. Make A Charitable Donation
If you contributed to a charity by the end of December, you might then receive what's called a donation credit for your tax year. With this, it's possible to claim the total amount of the donation on your tax return.
You need to find a preferred charity and make the payment to the deductible gift recipient.
5. Contribute to Maximum Retirement
There is no better investment than placing money in your tax-deferred retirement savings accounts. This is because they can grow to a substantial amount all due to their ability to
the compound over time with the benefit of being free of taxes.
In many cases, company-sponsored plans (401) plans are the best deal to make because many employers often match many contributions.
With CapexCPA, we'll ask you all the simple questions about your finances to help you fill out the most suitable tax forms to have you ready to go for tax season and any other accounting needs.