GCCIBlog, Financial Planning, Retirement Issues and more

It is the time of year when we begin to think about filing our income taxes with the government. Some of us get it done as fast as we can so that we get it over with, while others will wait until the last day and run to the post office to send in their tax statements.  With electronic systems now, many people use tax software programs such as Intuit to complete and file their taxes online. Submitting your tax report only takes a matter of minutes and if you are getting a refund, you are finished. Just wait for that check to arrive.

But what if you owe tax, you can still file on line, however you had better follow up with either a check in the mail with the envelope postdated on the deadline or you send the money from your bank electronically. Is it better to get a refund or is it better to owe money at tax time. The answer is somewhat complicated and really depends on the individual and how you manage your money.

The writer believes it is better to owe money. After all it is your money to start with and why should the government use it when you can. If your the type of person who has no problem coming up with the money when it comes time to file, then there is no problem. However if you have a problem saving or you do not like surprises, then it is probably best that you allow a larger source deduction to take place and receive a refund each year.

Besides for some people it is another way of saving money. Who doesn’t like to get a refund and some money in April or May from the government. It can be a nice little present that you can use to pay off other bills or perhaps go on a vacation.  Here is a summary of what the options are and the benefits of each scenario:

Receive a tax Refund

• Government has access to your money for up to a year
• Nice surprise
• Pay off bills when you get it
• Another way of saving money

Taxes Owing at Tax Time

• Did you save enough to pay your taxes or will it be a hardship
• You had access to the money
• If you have loans, then you may pay less interest
• Government may assess a penalty if your late filing
• Government may tell you to pay more during the year

These are just a few of the issues to consider when considering a Tax Refunds  and whether you paid too much.  The main thing that all of us need to focus on is to complete our tax forms and get them filed on time. Oh yes, if we owe money pay it on time as well. It is only the end of Feb at time of writing and we have almost two months to get this done, so don’t procrastinate, do your tax forms and file on time.

If you have strong opinions on this subject, submit a comment. Comments that are well written and help our readers if if it is a different point of view. We will will even approve comments with links for well written comments. All other comments will likely be caught by our filter systems.

It’s that time of year again when you still have time to arrange your finances to reduce your income taxes before year end. There are only a few weeks left before the end of the year. Once Jan 1st roles around it will be time to begin focusing on the next tax year and managing your tax liability. Some tax planning activities apply all year long while others are more specific to the end of the year in terms or tax management.

Consider tax reduction strategies that stem from offsetting capital gains with losses,  to writing off interest expense, and other certain year-end activities that must be completed by December 31 in order to realize tax savings in 2010.

Here are five year end tips that may help Canadian families and individuals  in terms of tax planning. You should always discuss your personal situation with your investment or tax adviser before making any decisions. Individual situations can vary widely and the impact of various strategies can have a wide impact as well, both negative as well as positive.

If you are an American, you may also be able to take advantage of some of these considerations, however you should review your opportunities with a US financial adviser.

Turn losing investments into potential savings

Tax-loss selling is the practice of selling securities which are in an accrued loss position at year-end in order to offset capital gains realized earlier in the year. When tax-loss selling, to guarantee that a trade of public securities is settled in 2010, the trade date must be December 24, 2010 or earlier. This ensures the settlement takes place in 2010 and that any losses realized are available to the taxpayer this year. Any trade made after December 24, 2010 will not settle until 2011 and therefore those losses would not be available until next year.

If you’re hopeful that a losing investment will recover and you’re thinking of buying it back shortly after selling, be wary of the ‘superficial loss’ rule. A superficial loss occurs when you or your spouse sell an investment to realize the loss only to buy it back within 30 days after the sale date. The CRA can deny a superficial loss and instead add it back to the adjusted cost base (tax cost) of the repurchased security, meaning the benefit of the capital loss can only be obtained when the repurchased security is sold again and not repurchased within 30 days.

Turning 71 in 2010, it’s time to convert your RRSP

Canadians with Registered Retirement Savings Plan (RRSP) annuitants who turned 71 in 2010 must convert their RRSPs into either a Registered Retirement Income Fund (RRIF) or a registered annuity on or before December 31, 2010. And if you plan on making any final contributions to your RRSP, you will only have until December 31 to do so as you no longer have the extra sixty-day advantage of delaying until March 1, 2011. If, however, your spouse or partner is under 72, you can continue contributing to a spousal RRSP in his or her name, provided you still have contribution room.

Finally, if you’re 71 and don’t have a younger spouse or partner but still have earned income from 2010 that will create RRSP contribution room for 2011, consider making a deliberate over contribution in December 2010 before converting to a RRIF. While you will pay a penalty tax of 1% on the over contribution for the month of December, when new RRSP room opens up on January 1, 2011, the over contribution problem disappears and you can deduct the 2010 contribution in 2011 or a future year.

Contribute to an RESP to generate future savings

If you have a child or grandchild who has never participated as a beneficiary in a Registered Education Savings Plan (RESP) and who turned 15 sometime in 2010, December 31 is your last chance to contribute at least $2,000 to his or her RESP in order to collect the 20% Canada Education Savings Grant (CESG) for 2010 and create eligibility for CESGs in 2011 and 2012. If you miss the deadline, the child or grandchild will not be eligible for any CESGs in the future.

Spread some goodwill by making donations

December 31 is the last day to make a donation and get a tax receipt for 2010. Keep in mind that gifting publicly-traded securities, mutual funds or segregated funds with accrued capital gains to a registered charity not only entitles you to a tax receipt for the fair market value of the security or fund being donated but eliminates any capital gains tax as well.

Pay off investment expenses and interest

In order for you to deduct any investment-related expenses on your 2010 tax return, the amounts must actually be paid by year-end (December 31).

Such expenses include interest paid on money borrowed for investing, investment counseling fees for non-registered accounts, professional accounting services for tracking rental or business income and safety deposit box rental fees.

As always,  discuss all tax-planning strategies with a financial advisor or tax professional to properly determine your risk and eligibility. There may be other potential tax-savings opportunities depending on your personal situation.

If you are a  small business owner and your year end coincides with the end of the year, there are some things you can do now to save on tax before the new year.

While many small business owners find themselves busy wrapping up their fiscal year end at the end of their year end, they could be missing out on substantial  tax savings if they fail to take advantage of  opportunities to reduce their companies income tax commitment.

Small business owners have some unique tax-saving strategies they can employ towards the end of their tax year to help boost their overall savings for the current tax year.  For example, if you’ve been mulling over the purchase of new business assets, purchasing these assets prior to the end of your tax year could be the most advantageous time to take action from a tax perspective.

Discuss year-end tax strategies with a financial advisor or tax professional as many of these activities must be completed by December 31st if this is the end of your companies tax year in order to realize tax savings for the end of the year.

There are a couple of areas that small business owners can focus on, however based on your specific business situation there may be other additional areas that you can take advantage of. Talk to your tax accountant prior to the end of your year end

Now is the time to purchase business assets

If you’re self-employed or a small business owner, you may wish to consider accelerating the purchase of new business equipment or office furniture that you may have been planning to purchase in the following year. Under the tax rules, you are generally permitted to deduct, under the “half-year rule,” one half of a full year’s tax depreciation in 2010, even if you bought it on the last day of the year. For 2011, you can then proceed to claim a full year’s depreciation. Check with your tax accountant on the depreciation rules in your country.

For computer equipment purchased before year end, you can write off 100 per cent of the cost in the year of acquisition – with no half-year rule in many cases.

Rethink year-end compensation

If your business is incorporated and you are facing an approaching December 31 corporate year-end, you may wish to revisit your salary-dividend mix for 2010. It may make more sense for small business owners to pay themselves exclusively through dividends rather than salary in 2010. While this precludes them from making an RRSP contribution next year as dividends are not considered “earned income,” they may be better off saving money inside their corporations rather than inside an RRSP.

Talk to your adviser about the potential tax savings advantage dividends may offer over salary and about the tax deferral advantage of leaving funds inside the company as opposed to paying them out immediately.

Have your corporation reimburse rewards-paid travel

If you used personally-earned credit card rewards points, such as Aeroplan Miles, to travel for business, have your corporation reimburse you for the value of the travel. Your corporation can deduct the expense and it may be  non-taxable to you personally.

“To make sure tax-planning for your business stays a priority all year long, it’s important for small business owners to review these and other strategies with an adviser on a regular basis. Discussing your tax situation with a professional can help you ensure you’re taking advantage of all the available tax minimization strategies.