Let’s face it, you probably procrastinate because preparing taxes is something you don’t like. First, there is the prospect of determining just how much you owe the tax man. Then, you might fret about missing a tax credit or deduction. And once it’s all said and done and your return has been sent off to the government, you may catch yourself worrying about how it will be assessed – and, worse, if it will be subject to an audit.
These are all valid concerns – but a better approach is to set aside those fears and realize that this time of year is the perfect opportunity to reflect on your personal finances and tax planning. So where can you start?
First, you should gather your tax documents – this includes the information slips related to various sources of work and investment income, and the receipts required to support your credits and deductions, such as charitable donations and medical expenses. And if you operate a small unincorporated business, you should establish a statement of income and expenses, with receipts and other documents to back it up. Not only will this get you organized it will allow you to assess your financial health.
With your information ready, you are now well positioned to look for ways to make improvements to your finances. To help you on your way, here are some tax tips to consider:
DEDUCT, all available deductions and credits to reduce taxes including
Management fees, interest on loans used to earn business or investment (non-registered) income, child care expenses, unused capital losses from previous years (deductible against capital gains), business investment losses, alimony paid to an ex-spouse, certain moving expenses, certain legal expenses, etc.
Crystallize unrealized capital losses in non-registered investment portfolios in order to reduce previous or current years taxable capital gains
Leverage tax planning available to transfer capital losses to your spouse
Take advantage of ALL tax credits that may apply including: charitable gifts in cash or in shares, medical expenses, attendant care expenses, Quebec childcare expenses, home-support expenses for seniors, and while they are still available children’s fitness and artistic expenses etc.
Optimize the use of the capital gains exemption for a principal residence if you sold a property and own more than one real estate property
DEFER, the payment of taxes related to current income by
Contributing to registered savings plans (RRSP, RESP, RDSP etc.)
Considering whether it’s appropriate for you to incorporate your professional business
DIVIDE, the burden of your taxes by
Splitting your pension income with your spouse
Transferring dividend income to your spouse in order to maximize the use of the dividend tax credit
Contributing to a spousal RRSP
Giving money to your spouse to contribute to her TFSA
Loaning money to your spouse at the prescribed rate (currently 1%) in order to avoid attribution rules
Establish an inter-vivos trust to split income with your family
Gifting capital assets to your children so they can earn capital gains not subject to attribution
Investing child tax benefit payments received in your child’s name
Evaluating whether to pay a salary or dividend from your incorporated business, and whether to have your children or spouse participate in owning shares
Tax planning strategies are complex. To help you make the most in your situation, contact a qualified professional tax advisor who can review your personal situation and give you advice on which strategies work best for you. And before you know it, you’ll be well on the way to improving your finances in 2017.