’Tis the season…for tips. Year-end is a great time for tax and investment tipsters. Trouble is, in the hustle and bustle of the holiday season, most of us either ignore or soon forget what we’ve heard. But there are, in fact, a few year-end investment and tax tips that make a lot of sense. Mainly because they could save you a bundle of dough – and maybe even get you a tax refund come next May or June. Here are some of my favorite year-end tax tips.
Avoid buying mutual funds in December
For example, you should not buy a mutual fund in December in a non-registered account. If you do, you could end up paying tax without ever having made a buck in gains. It all has to do with year-end distributions made by mutual funds, which impact net asset value. Why pay for someone else’s distribution? Wait, and invest in January. Keep in mind that this won’t necessarily apply to exchange-traded funds. Check with your financial planner before making any mutual fund transactions around this time of the year.
Then, if you’re an investor, and you’ve got some losing stocks in your portfolio, you might want to consider selling before year-end. That’s because you can use losses to offset any gains you might have made earlier in the year on other investments. To qualify for 2013, the settlement must take place in 2013.You still have time – barely. The last possible day to sell securities to be eligible for a capital loss in 2013 is Dec. 24. That’s because it takes three business days to settle a transaction, which over the holiday period brings us to Dec. 31, 2013. For U.S. exchange-traded stocks, different rules apply, and you may have another day’s leeway. But check with your broker or advisor now, while you still have time, to be absolutely sure you can meet the various transaction deadlines.
There are also a number of payments that you can make before year-end to get a tax benefit for 2013. These include such things as charitable donations (you can still do it online to ensure your donation is processed for 2013), and investment-related expenses used to earn income, like interest payments on money borrowed for investment purposes, investment counselling fees, even safe-deposit box rental fees.
While not strictly investment-related, ensure you make any necessary medical or dental payments for items not covered by provincial health plans. These include such things as glasses, prescription drugs, and hearing aids. Pay before year-end and you can add them to your medical expense deduction for the year.
Defer RRSP/RRIF withdrawals
And if you’re planning a withdrawal from your Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF), wait until January if you can. Withdrawals from these plans are included in your taxable income for the year. By deferring a withdrawal if you can until early 2014, you’ll put off the tax hit for another year. And, as the tax gurus are always fond of saying, “a tax deferred is a tax saved.”
© 2013 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited.