Tag Archives: Financial Advisers

Tax Saving Opportunities

Tax Saving OpportunitiesIt’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 rolls around it will be time to begin focusing on the next tax year. Also 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. Talk to your tax accountant to review what steps are needed to minimize your tax commitment for the year.

Tax Saving Opportunities

Consider tax reduction strategies that stem from offsetting capital gains with losses. Also 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. 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. Investors do this 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 2019, the trade date must be December 24, 2019 or earlier. This ensures the settlement takes place in 2019. Also that any losses realized are available to the taxpayer this year. Any trade made after December 24, 2019 will not settle until 2020. As a result herefore 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 you sell an investment to realize the loss. Then buy it back within 30 days after the sale date. The CRA can deny a superficial loss. They can instead add it back to the adjusted cost base (tax cost) of the repurchased security. This means 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 2019 must convert their RRSPs into either a Registered Retirement Income Fund (RRIF) or a registered annuity on or before December 31, 2019. 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, 2020. If, however, your spouse or partner is under 72, you can continue contributing to a spousal RRSP in his or her name. This assumes 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 2019 that will create RRSP contribution room for 2020. Consider making a deliberate over contribution in December 2019 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, 2020, the over contribution problem disappear.. You can deduct the 2019 contribution in 2020 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 2019, 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 2019 and create eligibility for CESGs in 2020 and 2021. 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 2019 tax return, the amounts must actually be paid by year-end (December 31).

Such expenses include interest paid on money borrowed for investing. In addition for investment counseling fees for non-registered accounts. Also for 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.

Common Investment Mistakes

Common Investment Mistakes There are six common investment mistakes that most investors make, which can have a significant impact on their overall savings and retirement income. Most people do not pay as much attention and time to their investments as they do to Monday night football or some other past time. As a result the following mistakes are often made contributing to less than stellar performance of their investments.

Common Investment Mistakes

These six mistakes include – Over Confidence; Following the Herd; Timing & Selection; Control of Your Investments; Paying too Much for Fees; Trust in your Adviser.

Over Confidence

Investing is a lifetime exercise since savings while you are young are being put away for your retirement. As a rule we tend to make decisions based on our level of confidence as well as gut feel and not sound business analysis. If you did well pre technology boom in 2000, then you probably felt that the boom would continue and all you need to do is ride the wave. Warren Buffet was criticized for not getting on the band wagon when the tech boom was taking off. His rational was that he did not understand the tech boom and did not understand how many companies could sustain a long term profit / income profile. In fact he was ridiculed as being passe.

Well it turns out that all of the over confident people were wrong and he was right.  Many companies suffered badly when the tech boom crashed and many went out of business. Warren Buffet is still as successful as ever.

Following the Herd

Following the herd is also a common mistake that many investors make. They assume that someone must know what they are doing and if so many people are investing in this manner it must be a good thing. The Housing bubble and the Tech bubble in recent times have shown us that following the herd is not always the right strategy.

Long term investing in quality equities that can withstand the test of market volatility and turmoil are often the better investment strategies. Following the herd also often means that the market is rising and investors are flocking to get on board at a time when equities and mutual funds are over inflated. This defeats the rule of buy low and sell high!

Timing & Selection

Many investors try to time their investments to catch an upswing in the market and sell as a downswing is starting. Some are in deed successful and numerous stories are told of massive profits of investors that have successfully timed the market. Unfortunately the majority are not able to time the market well for a variety or reasons and as a result do not make the massive profits that other investors are able to reap.

In fact studies have shown that the buy and hold investor is able to make 2 % more than the investor who tries to time the market. In addition buying selective high quality stocks further increases the probability of doing well with a buy and hold strategy instead of timing your investments.

Control of Your Investments

Control of your investments is really a myth. The stock market follows its own random volatility which investors cannot control. Following a fad such as the Santa Claus rally is totally outside your control since many investors are trying to time their investments around the Santa Claus rally and as a result changing the timing and the shape of the rally.

Paying too Much for Fees

The fundamental message here is that your investment adviser is working to make his income and not yours. It is true that if you do well , then their reputation increases, however they do not make money from reputations. Instead they make money from trades, whether it is selling equities, mutual funds or bonds. Every investment adviser makes money from more sales and that is one of the reasons they are constantly recommending additional investments for you to consider.

Doing a lot of trades may not always be the best answer. Trade commissions eat into your profits and enhance the income of your adviser. A buy and hold approach will significantly decrease the investment trade costs for you and improve your profit level from asset growth and dividend payments. Your adviser may not be happy with this approach and will no doubt try to sell you some additional investments. Review all with open eyes and what is best for you.

Trust in your Adviser

Trust in your adviser goes hand in hand with paying too many fees. Granted we are looking at our investment adviser for guidance and recommendations. However these all should be taken with a grain of salt. Examine the benefit to you for every investment you are about to make. Your adviser may be motivated by the commissions he or she will get. Not necessarily whether it is the best long term approach.

This is not to suggest that they are dishonest. However when faced with recommending two different investments with perceived equal advantages to the inverter, the adviser will recommend the one that makes him or her the most money every time.

In Summary

While these are not the only mistakes investors make,. We can be confident if you are able to manage these six areas. Chances are your investment return will be higher on average than the index’s and most investment adviser.

A key question to ask yourself. Did your adviser recommend that you sell prior to the downturn in the markets in 2009? Or was he pushing investments as if everything was going to continue to grow? Perhaps that is unfair, but then that is supposedly what you pay them commissions for.