Doing some work over the Holiday season can reap rewards for 2013
While most of us prefer to eat, drink and be Merry this time of year, it may be helpful to do a little tax planning to ensure 2013 emerges positively from a personal tax perspective. Here are a few ideas that can help:
- Make Charitable donations
To be claimed on your 2012 tax return, all charitable donations must be made by December 31. The first $200 in donations receives a 21% combined federal and Ontario tax credit. Donations over $200 receive a 40% credit. If you have a spouse, donations can be pooled to maximize this credit.
- Make Political contributions
Political contributions also have to be made by December 31 to be claimed on your 2012 tax return. Unlike dividends, these contributions are highest at lower levels, so they should not be pooled. For federal political contributions, you receive a 75% credit on the first $400 you contribute, a 50% credit on contributions between $400 and $750, and a 33.33% credit on contributions over $750, to a maximum credit of $650.
- Age 71? Time to convert
If you turn 71 in 2012 you must convert your tax-sheltered savings such as RRSPs into a RRIF or other retirement plan before December 31. If you don’t do this, your assets would become fully taxable.
- Make TFSA withdrawals
If you are considering making TFSA withdrawals in the near future, do it before December 31. This is because of the TFSA rules surrounding withdrawals. You can only contribute withdrawn amounts as of the following year. Therefore, if withdrawn in 2012, you can immediately re-contribute the amount as of January 1, 2013 should you wish. If you withdraw on January 1, 2013, you will not be allowed to re-contribute until 2014.
- Put investment losses to work
If you have capital gains in 2012 or in any of the previous three tax years, you might consider selling investments with unrealized losses, so you can then apply these losses against the gains to reduce taxes. Keep in mind that these losses must first be applied to 2012 capital gains, and then carried back, if applicable.
- Make RESP contributions for children
Registered Education Savings Plan (RESP) contributions attract matching Canada Education Savings Grant (CESG) of 20%, to a maximum of $500 per child per year. If you make a RESP contribution by December 31, you help ensure that your children will receive the maximum lifetime CESG of $7,200 by age 17 (the last year when RESP contributions can be made).
- Organize your receipts
In order to claim some of the items listed above, as well as a myriad others, you need receipts to back them up. Organizing them now and following up on misplaced receipts is a good idea. Common credits/deductions where you need receipts include charitable and political contributions, RRSP contributions, child care, medical and tuition expenses. In addition, transit passes and fitness expenses for your children are eligible for credits and receipts will be required.
- Time for an accountant?
If you have usually prepared your personal tax returns yourself, but your situation has become more complex (buying or selling a business, divorce, termination or new employment with deductible employment expenses, or any other out of the ordinary event), consider having an accountant prepare your return. Be sure to approach them well before the filing deadline as most will be extremely busy in April. Finding one is as easy as surfing the net or the yellow pages, or approaching a friend or colleague for a recommendation. Lots of people use accountants.
For more detailed information contact your accountant today.