November 27, 2014
WBLI would like to present our top five tips for end of year tax planning.
END OF YEAR TAX PLANNING FOR 2014
As we head into the last month of 2014, there are still some steps you can take to reduce your taxes for 2014. Here are our top five tips:
1. Contribute to RRSP’s – An RRSP contribution can be made at any time, but if you want to reduce your 2014 income, you will need to make your contribution by March 2, 2015. The maximum limit for 2014 is the lesser of $24,270, or 18% of your 2013 earned income, less any pension adjustments. If you have not maxed out your previous RRSP room, your contribution room may be higher. Be sure to check the bottom of your 2013 Notice of Assessment from CRA for your 2014 RRSP contribution room.
2. Make Donations – ‘Tis the season for giving. If you are looking to make donations to your favourite charity, donations must be paid by December 31st to be claimed on your 2014 tax return. Did you know that in Nova Scotia, after your first $200 of donations in a year, the tax credit is 50% of any donations paid? The tax credit on the first $200 is 23.79% or $48. For every additional donation, let’s assume $100, you will reduce your tax bill by 50% or $50. What a great way to give back to your community and reduce taxes!
3. Pay Medical Expenses – You can only claim medical expenses that were actually paid by December 31st. If you pay the bill in January, it will have to wait until next year. Many people don’t accumulate enough medical expenses in a year to be able to claim them, since you must spend more than 3% of your net income before you receive any medical tax credit. Keep in mind that you can claim your premiums paid to your health services plan as a medical expense. Also, try to plan big purchases to make the most of the credit. You can claim medical expenses for any twelve month period that ends in the 2014 tax year.
4. Tax-Loss Selling – Have you sold non-registered investments in 2014 for a capital gain? Have you sold any real estate that would trigger capital gains? If you find yourself in this situation and you have investments that are currently worth less than what you paid for them, consider selling them before December 31st. A capital loss can only be used against capital gains. Perhaps you had capital gains in the last three years on which you already paid tax. If you sell losing stocks now, you can carry the capital loss back three years to recover the tax previously paid on capital gains. Unused capital losses can be carried forward indefinitely.
5. Pay Dividends – If you have an incorporated business owned by a family trust, or even just held directly by you and your family, dividends are likely a part of your annual tax planning strategy. Dividends are a great way to provide for adult family members while shifting some of the tax burden from you. Why pay for your child’s tuition out of your own after-tax dollars, when you could pay a dividend to your child and have them pay for their own tuition? Dividends paid to individuals are taxable in the year received. Therefore, it is a good practice to ensure dividends are paid by December 31st and dividend resolutions are prepared and signed to support these dividend payments. A proper paper trail is key to ensuring you keep CRA happy and avoid future problems.
These are just a few of the ways to reduce your taxes as we end the year. Taxes should not lead your decision-making BUT if you can accomplish your overall goals and minimize taxes at the same time, it’s a good thing.
For a PDF version click HERE.