Don't miss these year-end tips to keep both your 2013 and 2014 income tax bills as low as possible.
In general, if you will be in a higher tax bracket in 2014, consider delaying deductions until then and having more income this year. If you will be in a lower tax bracket next year, then do the opposite: create deductions for this year and defer income until 2014.
Example: You will be in a higher tax bracket next year and plan to sell an investment which will produce a capital gain. Sell it now and pay less tax this year than you would pay in 2014.
On the other hand, investment and other transactions that will trigger deductible losses might be postponed until next year.
Here are some other taxsaving strategies: n Schedule and combine medical-dental expenses for you and close family members you support to maximize the total in a 12-month period ending this or next year.
- Pay two years' "carrying charges" (like safe deposit box rental) in the higher tax bracket year. If your tax bracket remains constant, then make the payment by Dec. 31 so you can claim the deduction this year.
- Also consider doubling up charitable donations for this year and next by Dec. 31, to maximize the tax credit. n Pay family members who work in your business (including investment property) what you would have paid an outsider to do the same work. Make the payment(s) by Dec. 31 to claim the expense this year. This also allows the family members to make an RRSP contribution for 2013, or at least build up RRSP contribution room for future years.
- If you have capital gains to declare this year, consider selling any poor investments now to realize your capital losses which can be used to offset the gains.
- Make spousal RRSP contributions by Dec. 31 so this money will be considered the spouse's for tax purposes one year sooner than if you make the contribution early next year.
- Review other tax-sheltered/deferred instruments to make contributions/withdrawals at the most advantageous time. Talk to the appropriate specialist at your financial institution.
Mike Grenby is a columnist and independent personal financial advisor; he'll answer questions in this column as space allows but cannot reply personally. Email [email protected]
