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D. Smith: Year-end deadline for taxpayers is fast approaching
December 31 is the last day to utilize 2012 expenses.
The end of the year is approaching and with the cut off date of Dec. 31 for tax payers, it is time to turn our attention to finances and the year end tax summary.
First of all, keep your receipts because without receipts the Canada Revenue Agency can deny your claimed expenses.
Do you have any expenses to take advantage of before the Dec 31 deadline?
Is your taxable income higher in this calendar year or will your taxable income be higher in 2013?
If it is higher this year, you may want to take advantage of using some tax deductible expenses now to offset your tax bill.
If, however, your taxable income is lower in 2013, you may choose to wait until the next year to incur additional planned expenses.
Some year end tax deductions that face the annual cut off of Dec. 31 include medical expenses, child-care costs, charitable contributions and union dues.
Investment related expenses include interest costs paid on money borrowed for investing purposes and investment counseling fees for non registered accounts. Remember to include the fees paid for professional services for business and rental income.
Review your Tax Free Savings Accounts if you are in a growth investment.
If you have made a substantial gain, you can withdraw your TFSA before Dec. 31 and replenish your TFSA account in January to enjoy a higher adjusted cost base.
If a withdrawal is made early in the year from a TFSA, you have to wait until the following year to contribute back into your TFSA. Check out the CRA website www.cra-arc.gc.ca for complete details on TFSA accounts.
Corporate class investing in non registered accounts will reduce your annual tax bill.
This is a good time to review if this investment strategy can keep more dollars in your pocket and less dollars paid annually to CRA.
For those over age 65, a pension credit can get you $2,000 tax free income.
The first 2,000 of pension or annuity income is considered tax free and eligible for the pension credit. The tax credit may make converting your RRSP into a RRIF worthwhile.
December 31 is the deadline for clients who turn age 71 this year to convert their RRSP to a RRIF.
Split your pension income with a spouse for tax efficiency.
Review all pension income options including the CPP option to split retirement income.
If you are in a low tax bracket now before receiving mandatory RRIF income after age 72, you can choose to withdraw registered funds now. This will help equalize income now and in the future.
If you have losses or gains in non-registered accounts, remember the CRA rules; capital gains are included in the year they are realized, capital losses can be carried forward indefinitely, and carried back to apply against gains made in the past three years.
Now is the time of year to review all the tax saving strategies available before the calendar rolls over to 2013.
Doreen Smith is a Certified Financial Planner with Manulife Securities Investment Services Inc and with Capri Wealth Management Inc.