Year End Financial and Tax Planning Ideas

As we turn the page into December, I wanted to share 5 financial and tax planning ideas to consider before the end of the calendar year:

1.       Review your Investment Mix: The security markets have been generally happy since 2009, but some areas (geographical (US and Europe) and industrial (financial, technologies)) have outperformed others (Canada, materials, precious metals).  It is not uncommon to see an investment portfolio of RRSPs, Tax Free Savings Accounts and other non-registered savings become tilted toward the over-performers, and that may subject your portfolio to greater risk than you intended.  Have your advisor review your portfolio and assess whether any re-balancing of your investments might be in your best interest.

2.       Capital Loss Realization:  We have had the securities market rising for the past few years, and that may have contributed to the realizing of capital gains on the sale of securities that are not otherwise deferred from tax (e.g. not in your RRSP or Tax Free Savings Account).  If you have taxable capital gains for this year, either through a direct sale of securities or through the allocation of capital gains from your mutual fund investment, consider whether you have any unrealized capital losses in other securities.  This may be a good time to sell off these securities that have been the “dog” of your portfolio, and use the capital loss created to offset part or all of your taxable capital gain.

3.       Charitable Donations:   Charitable donations can save us the top marginal tax rate in British Columbia (currently 43.7%) where you and your spouse have donated greater than $200.  If you plan to donate to a charity or cause, consider doing so now in December to realize the tax savings on your tax return come next April!

4.       Budget for Christmas/Travel:  December is a common month to spend more than we intended on Christmas presents or vacation get-a-ways.  BMO’s Holiday Spending Outlook Survey suggests that Canadians will spend an average $674 for gifts, and $1,810 in total when gifts are combined with travel.   Have a budget for these two common expenditures and a plan on how they are going to be paid for (cash savings now and/or financing latter).  By putting some initial plans in place, you can help ensure you don’t overspend in December and then overextend your finances in January.

5.       Give the Gift of Savings:  Do you need a gift idea for your child, grandchild, niece or nephew?  How about the gift of savings?  Cash towards their Registered Education Savings Plan can earn them an immediate 20% Federal Grant plus some additional benefits (where applicable).  The longer-term goal is to then have a savings pot to pay for their future education.  Or how about cash for general investment or savings?  While kids may prefer accessories, rocket ships or Cra-Z-Looms now, you will be teaching the important lesson of saving.  Try finding a balance between gifts for now and savings for later.