While Halloween is the time for haunted houses, scary movies and ghost stories, it’s Dec. 31 that can be truly frightening for investors without a proper year-end tax planning strategy, according to experts with RBC Wealth Management.
“Dec. 31 is second only to April 30 as a crucial date in the tax planning calendar,” says Tony Maiorino, vice-president and head, RBC Wealth Management Services. “Because this date represents the last day of the year that potential tax savings opportunities are available, you need to start planning now to help achieve your financial goals.”
Here are five possible tax strategies to share with clients to make sure Oct. 31st remains the scariest day of the year:
1. Unrealized capital gains: Clients with unrealized capital gains may want to consider deferring them until after Dec. 31 if their marginal tax rate may be lower in 2013 compared to 2012. This could allow for any tax payments to be deferred until 2014.
2. Tax loss selling: Is a client facing a large capital gain in 2012? Perhaps the client sold a rental property, securities or business. If so, the client may wish to maximize the opportunities associated with selling securities that have an unrealized capital loss to help reduce tax liability or obtain refunds for taxes paid in previous years.
3. Charitable donation: Making a charitable donation is an excellent choice for reducing personal taxes. The final day to make contributions to a registered charity in order to claim the donation tax receipt on 2012 income tax returns is Dec. 31. However, if your clients plan on donating securities in-kind before year-end, then due to the administration involved in processing an in-kind donation, ensure that they start this process well in advance of the year-end to ensure that the in-kind donation is recorded as a 2012 donation.
4. Registered Retirement Savings Plan (RRSP) Conversion: Clients turning 71 in 2012 cannot have an RRSP after Dec. 31. Ask those clients to to consider making their expected 2013 RRSP contribution in December before converting their RRSPs.
5. Moving within Canada: If you have clients planning to move within Canada, consider that individuals pay provincial tax rates on taxable income based on their province of residence on Dec. 31. Since marginal tax rates vary from province to province (and from 39 to 50%), clients may want to consider moving prior to Dec. 31 if they are moving to a province with a lower tax rate.