As the end of the year approaches, you should remind clients they need to take action if they wish to take advantage of certain tax-planning opportunities.
Here are three end-of-year reminders for clients related to taxes:
> Tax-Loss Selling. Clients who are considering selling a losing investment may wish to do so before Dec. 31 in order to use the resulting capital loss to offset any capital gains earned in the current year or carry the loss back to offset a net capital gain in a prior year.
“With the help of their accountant and financial advisor,” says John Waters, vice president and head of tax, estate and trust expertise at BMO Nesbitt Burns in Toronto, “clients should try to get a sense of their net gains and losses for the year, and decide whether it makes sense, from an investment and tax perspective, to sell a security.”
> Tax-Free Savings Account. If your client is considering making a withdrawal from a TFSA, it might make sense to do so in December rather than wait until early 2012. A withdrawal from a TFSA results in an equal amount of contribution room added to the following year’s total contribution room. A withdrawal made in December results in new contribution that’s accessible in January; a withdrawal made in January will also result in new contribution room, but it won’t be accessible until 2013.
> Charitable Donations. Many Canadians make charitable donations, particularly over the holidays, for which they can obtain a tax credit for the current year. A popular strategy for taxpayers is to donate a publicly traded security that has appreciated in value; the taxpayer gets a tax receipt, plus he or she can avoid paying taxes on any capital gain related to that security.
It’s worth noting that a proposal in the 2011 federal budget will restrict the future tax benefits of this strategy for flow-through shares acquired after the budget date. IE