If you delay filing your taxes to April 30th, you have lost most of the control to make a difference on the outcome of your tax return. The time to think about tax planning is … always! In fact, strategic tax planning should be a part of every financial decision you make throughout the year. Before this year wraps up, here are 5 of the most common Tax Strategies that could lower your 2019 tax bill.
1.Tax-loss selling – If you have investments that have lost value from the time you purchased them and they no longer fit into your investment strategy, selling them creates a capital loss that can be used to offset any capital gains you may have. Capital losses can also be carried back three taxation years or carried forward indefinitely to offset capital gains. If you do intend to trigger a capital loss, be aware of the superficial loss rules that denies your capital loss if you dispose of a capital property for a lossand you, or a person affiliated with you, buys the same or identical property during the period starting 30 calendar days before and ending 30 calendar days after the sale.
2.Contributions to registered plans – Such plans as a Registered Savings Plan (RRSP), a Tax Free Savings Account (TFSA) and a Registered Disability Savings Plan (RDSP), all have date sensitive deadlines.
RRSP Contributions – While contributions to a RRSP can be made up to 60 days after the calendar year-end in order to deduct against the previous year’s earnings, making your contribution as early as possible will have your money working for you sooner. The maximum RRSP contribution limit for the 2019 tax year is 18% of your 2018 earned income up to a maximum of $26,500.
TFSA Contributions – Consider contributing to a TFSA as early as possible as the investment income earned in a TFSA is tax-free. If you haven’t contributed yet in 2019, consider making your contribution before year end. The contribution limit for 2019 is $6,000. The good news is that you can carry forward any unused contributions.
RDSP Contributions – Income earned inside the RDSP grow on a tax-deferred basis for as long as the funds remain in the plan. Depending on the family net income of the person with a disability, the beneficiary may qualify for matching government contributions in the form of a Canada Disability Savings Grant (CDSG). In addition, the government will provide an annual Canada Disability Savings Bond (CDSB) based solely on family net income, and not on your contributions.
3.Charitable donations – You can help out a cause of your choice while receiving a tax credit. For the first $200, the federal donation credit is 15 per cent. For amounts exceeding $200 in a year, the federal donation credit increases to 29 per cent.
4.Medical Expenses – Medical expenses that exceed the lower of 3% of your net income or $2,352 in 2019 are eligible for the medical expense tax credit (METC). You must, however, pay your medical expenses by Dec. 31 to qualify for the 2019 tax credit. Medical expenses do not have to be claimed strictly from Jan 1st to Dec 31st. You can go back to any 12-month period as long as it ends date falls within the 2019 calendar year. For example, you can decide to claim medical expenses from Feb 1st 2018 to Jan 31st 2019 if you haven’t claimed those medical expenses before.
5.Defer Income – If you anticipate that you will be in a lower marginal tax rate in 2020, consider deferring receipt of any income, such as bonuses for example, to the beginning of next year.
These are just a few strategies to consider in helping you lower your tax bill. Always take taxes into account when making financial decisions and do not wait for filing deadlines to start thinking about your income taxes.
The information in this post has been carefully prepared however it has been written in very general terms. None of the tax strategies mentioned should be acted upon for your specific situations without the guidance of a professional advisor.
If you have any questions, don’t hesitate to contact us for help.