Improve your finances with six year-end tasks
If you have non-registered investments (stocks, mutual funds or exchange-traded funds), now could be a good time to sell losers and offset any capital gains for 2013. Though markets have been stellar this year, not every sector is shining. And even in very strong sectors there are perpetual laggards.
Of course, getting rid of investments is much tougher than acquiring them. Investors are always hoping that a holding will magically turn around one day. Put emotion aside and take a hard look at your portfolio. There may be good quality investments that are sagging simply because of current market conditions (energy these days, for example) and they are worth hanging on to for the long term. However, if you have a stock or mutual fund that has been a perennial sad sack, it might be a candidate for end-of-year selling.
And don’t forget that even if you are only selling losers and will have no capital gains in 2013, you can carry losses back three years or forward indefinitely. This is a particular boon to those who are close to or in retirement and will be drawing on non-registered investments. As you sell, the tax consequences of capital gains will be ameliorated or even eliminated by losses already incurred.
Note: H&R Block reminds investors that the deadline for selling is Dec. 23rd in order to have losses included in the 2013 tax year.
While we do want to educate our little darlings, as parents we’d prefer them to be free of student debt before their grey hairs start sprouting. That’s where Registered Education Savings Plans (RESPs) come in. For every $2,500 per child contributed to an (RESP) the government provides $500 through the Canada Education Savings Grant (CESG). Lower income families may qualify for an additional grant and the Canada Learning Bond.
At this time of year, it’s tempting to put off RESP contributions because it’s possible to catch up in later years and still qualify for the CESG. Don’t go there! Every dollar not contributed in 2013 will be that much harder to find down the road.
Before shelling out for holiday gifts, food and travel, evaluate your RESP contributions. If you haven’t been able to make at least a $2,500 per child deposit to qualify for the maximum CESG, scaling back on end-of-year spending is a good idea.
3. Talk to family
Do your kids really need more toys and clothes? I’m not being a Grinch. Parents, grandparents and other family members might be very happy to contribute to an RESP as a holiday present. Younger children aren’t going to remember gifts anyway. Even older ones are easily overwhelmed by piles of presents. Making RESP contributions part of holiday giving early on is a very worthwhile habit to develop. My six-year-old grandson already understands that Nana and Grandpa’s annual envelope on the tree is going to help him go to astronaut or superhero school one day.
4. Evaluate taxes
It isn’t too early to do a rough calculation of taxes before year-end and before too much money is spent through the holiday. Those on EI benefits, including maternity leave, are often surprised at tax time to discover there’s money owing. Deductions at source aren’t always sufficient, especially if there has been any other income during the year. Set money aside to cover the tax liability before getting caught up in the spending spirit of the season.
Most 2013 tax software isn’t available yet but you can estimate your taxes owing by using last year’s program. Or, compare this year’s income to last and if your deductions/tax credits — such as medical and RRSP contributions — are fairly similar you’ll have a rough idea of where you will stand when you file this year. Don’t forget to compare source income tax deductions to arrive at a reasonably accurate figure.
The benefit of looking at your tax situation now, long before the filing deadline, is that it forces you to put your paperwork together. The biggest problem tax filers have is trying to gather slips and receipts. Getting a leg up now will pay dividends in 2014.
Charity and the holidays go together like turkey and gravy. Make the most of your giving by doing it before year-end, especially if you are a first-time donor. The new First-Time Donor’s Super Credit provides a 40 per cent credit on the first $200 (versus 15 per cent for other donors) and 54 per cent on donations between $200 and $1,000.