The problem with year- end tax tips is that if you wait until year end it is usually too late to take any action. Now is the time to begin your near year end planning so you are truly set for year- end. Here are important points to ponder.
Health Expenses – If you have expensive medical or dental work coming up that you have to pay out of your own pocket consider having it done before December 31. You will be able to claim the credit on your 2015 tax return in spring 2016. If you wait until January you will not be able to use the tax credit until you do your 2016 tax in spring 2017. A $3,000 dental bill for example will save you approximately $175 to $300 in taxes.
Donations – Donations made before December 31, 2015 can be claimed on your 2015 tax return in the spring of 2016. A $300 donation saves you about $85 to $130 in taxes.
Tax Loss Selling – Do It Now – If you’ve got investments that have dropped in value, consider selling these to realize the capital losses before year-end (place trades by Dec. 24 if you want them to settle in 2015). This makes the most sense if you reported capital gains on your 2014, 2013 or 2012 tax returns. You’ll be able to carry your capital losses back up to three years to offset gains in those years and recover taxes you paid.
Tax Gain Selling – Do It Later – It’s almost always better to pay tax later, rather than sooner. If you’re thinking of taking some profits on the winners in your portfolio, consider waiting until January to sell. This will push the payment of your tax bill on the sale to the spring of 2016.
If one part of your portfolio is in a gain and another component is in a loss position of the same size you can sell both before year end. The loss can offset the gain leaving you in a neutral tax position.
TFSA – If you are planning to make a withdrawal from your tax-free savings account (TFSA), consider doing this now rather than in early 2016. If you delay until the new year, you will not regain the equivalent amount of TFSA contribution room until 2017. This is because amounts withdrawn from a TFSA are not added to your contribution room until the beginning of the year after the withdrawal is made.
Leaving the Province? Now Or Later? – If you are planning to move provinces and if your scheduling permits it, then strategically plan your move time. If you are moving from a low tax province to a high tax province delay your move until 2016. You are taxed in the province where you are resident on December 31, 2015. If you are moving from a high tax province to a low tax province make your move before December 31, 2015. For example a single person earning $75,000 per year pays about $15,944 tax in British Columbia (a low tax province) but would pay about $20,785 tax in Quebec (a high tax province). That’s a difference of $4,841.
Get Organized Now – Many, many dollars are lost because the taxpayer “could not find the receipt”. It’s never too early to start organizing now. Running around like a chicken with its head cut off trying to find all your slips the day before the tax deadline is never a good thing. If you haven’t already started an envelope or folder to hold all your tax slips and receipts, then do so now. You can still procrastinate a little, but at least all your slips will be in one spot and you won’t miss claiming anything.
Remember, advance planning is tax dollars saved! Get ready now! Before you know it people will be joyously greeting each other with cries of “Happy Tax Season! “ Don’t get left out of the party !