The holiday season is almost upon us. You know what that means – spending, spending and more spending. If you’re stressed about your holiday finances we have good news. We’ve all heard of the 12 days of Christmas, but how about the 12 days of tax tips? Financial consulting leader Ernst & Young has come with its own festive financial tips to start the New Year off right with some money in the bank.
Day One: Start Up Those Savings
If you haven’t already, be sure to make your $5,000 tax-free savings account (TFSA) contribution before year end. If you haven’t opened a TFSA no worries – it’s never too late to start. Be sure to catch up with a $20,000 contribution and start the New Year off right with a $5,500 contribution (a $500 increase from 2012).
Day Two: Prep for Post-Secondary Education
Saving for your children’s education is a no-brainer. Registered education savings plans (RESPs) are the best way to sock away money for your toddler’s post-secondary education. Not only will your money grow tax-free, the government will kick-in a grant of $500 for a $2,500 contribution. Not too shabby!
Day Three: Contribute to Your Retirement
It’s never too early to plan for your retirement. Whether you’re hoping to move to Florida or travel the world, registered retirement savings plans (RRSPs) are the ideal savings tool. December 31st may signify the end of 2012, but you can still make 2012 RRSP contribution until March 1st of the following year. Eager beavers can make the most of their RRSP by contributing the maximum in January.
Day Four: Heed That RRSP Deadline
Unlike TFSAs you can’t contribute to RRSPs forever. If you turned 71 in 2012, circle December 31st on your calendar. This (not March 1st) is your final opportunity to contribute to your RRSP. Your RRSP will mature at year-end, so you’ll have an important choice to make – receive as a lump sum, convert it to a Registered Retirement Income Fund (RRIF) or purchase an annuity. This is a big financial decision, so be sure to consult your financial advisor.
Day Five: Tally Up Those Tax Deductible Expenses
Who ever said there’s no such thing as a free lunch? Don’t forget to pay your tax-deductible and tax-credits eligible expenses by December 31st. Tax-deductible expenses include interest, investment counsel/management fees, safety deposit box fees and child-care. Be aware of tax credits to take advantage of includes charitable donations, medical expenses, tuition fees and transit passes.
Day Six: Shrink Your Interest Payments
Make it your new year’s resolution to rid yourself of non-deductible interest – starting with the highest interest rate (usually your credit card) makes the most sense. Paying off non-deductible interest before your tax deductible interest will get the biggest bang for your buck.
Day Seven: Be Aware of All Taxable Benefits
Employees lucky enough to have a fancy ride provided by their employer won’t feel so lucky come tax time, as that employer-provided automobile is considered a taxable benefit. If your company car is mainly used for business, your standby charge and operating cost benefit will be reduced. Consult with your employer and accountant.
Day Eight: Don’t Wait For Your Money
A tax refund isn’t a financial windfall – it’s an overpayment in taxes. Instead of providing Canada Revenue Agency (CRA) with an interest-free loan, request for a reduction in taxes by completing Form T1213, Request to Reduce Tax Deductions at Source. Use the extra funds to top-up your RRSP and TFSA or pay down your mortgage.
Day Nine: Team Up For those Taxes
Income-splitting isn’t exclusive to spouses. If you’re in the highest marginal tax bracket, it makes sense to look at ways to split with your spouse, children or even grandchildren, who are in lower tax brackets. You’ll keep more of your hard-earned money in your hands and away from the taxman.
Day 10: Dump Those Losses
If your investment portfolio contains a real dog it’s worth considering selling it before year-end. Claiming a capital loss can be used against current year capital gains or carried back three years.
Day 11: Don’t Wait for those Deductions
Self-employed individuals and incorporated small business owners looking to make major capital purchases shouldn’t wait until the New Year. Make purchases before December 31st to claim the depreciation deduction in the current tax year.
Day 12: Be a Nice Boss
Business owners in Ontario and Quebec looking to reward employees with a salary increase or dividends should consider doing so before 2013. Not only will you save on taxes, capital gains will be taxed lower for investors. Talk about a win-win situation!