11 Year-End Tax Strategies – Before it’s Too Late
Before the end of tax season, individuals should take advantage of tax-saving opportunities and strategies.
3 tips for business owners:
Incorporated company: If your client is a business owner with an incorporated company, they’ll receive both year-end corporate income tax deductions and a structured retirement savings plan through an IPP.
Salaries for family members: Business owners should pay out salaries to family members before December 31. This strategy potentially provides these individuals earned income that enables them to make an RRSP contribution the following year, as well as a tax deduction in the current year.
Purchasing assets: If a client is planning to buy assets for their business like computers, they should buy them before the end of the current year. They can then claim depreciation on these assets for tax purposes.
8 tips for individuals:
Prescribed rate loan to spouse: The CRA has decided interest rates will remain 1% until December 31, 2012. Advise clients to consider establishing or modifying a spousal loan as a possible income splitting strategy.
Unrealized capital gains: If they have unrealized capital gains, help them defer the gains until 2013 if their marginal tax rate will be lower in the coming year. This could allow for any tax payments to be deferred until 2014.
Tax loss harvesting: Are your clients facing a large capital gain in 2012? If they sold a rental property or securities, they may wish to sell securities that have an unrealized capital loss to help reduce tax liability.
Charitable donation: Making a charitable donation reduces personal taxes paid each year. If clients plan on donating securities in-kind before year-end, though, start the process well in advance of year-end due to the administration involved in processing the donation.
Employer Bonus: Are they receiving an employee bonus by December 31, 2012? If they expect to be in a lower tax bracket in 2013, they should defer it to reduce their taxes.
Moving within Canada: If your clients are moving within Canada, they should take into account the differing provincial tax rates across the country—they vary from 39%-to-50%. If relocating to a province with a lower tax rate, they should make the transition before year-end.
Quarterly payments to CRA: If they make quarterly tax installment payments to the CRA, they need to make any final payments by December 15, 2012 to avoid late interest charges.
Fees: Pay all outstanding fees by the end of the year to ensure they count toward your 2013 tax return. This can include: investment management fees; tuition fees; safe deposit box fees; accounting and legal fees; childcare expenses; alimony; medical expenses; and any business expenses.