For many people, tax planning revolves around the RRSP contribution deadline. But that may be too late if you’re trying to take advantage of every opportunity to lower your tax bill. With a little advance planning, before the end of the calendar year, you’ll be set up for greater success and hopefully lower your taxes.
A little paperwork goes a long way
If you receive a regular paycheque, it’s easy to think your income and the taxes you pay are on auto-pilot. Taxes get deducted, contributions get made to a company benefit plan, and it can seem like you don’t have a lot of control over the numbers. The truth is, you have more control than you think and there are ways to lower your tax bill and put more money to work.
Planning does not need to be complicated. You only need to locate a few documents and set aside a little time to chat with your IG Consultant. Key documents include:
- Notice of Assessment sent from Canada Revenue Agency (and available online if you have a MyCRA account).
- Your latest pay stub and your best estimate for any income from bonuses or commissions.
- Statements for non-registered investments.
This information will help your IG Consultant determine if any action needs to be taken before the end of the calendar year in order to create the maximum amount of savings for you.
Planning for the “Rs”
The “Rs” are your registered accounts. These accounts are either tax-deferred or tax-free. They include:
- Registered Retirement Savings Plan (RRSP)
- Tax-free Saving Account (TFSA)
- Registered Education Savings Plan (RESP)
- Registered Disability Savings Plan (RDSP)
When planning to optimize your contributions to your registered accounts, consider the order of events. For example, a contribution to your RRSP could generate a tax refund. You could then contribute that amount to your RESP to generate grants from the federal and provincial governments.
Consider capital gains and losses
Sometimes, it makes sense to sell investments that have gone down in value because you can use the loss to lower your taxable income. You should seek the advice of a qualified tax specialist before taking this step. If you decide this approach is right for you, your IG Consultant can guide you through the steps and potential tax advantages. You can learn more about capital gains and losses here.
The bottom line
Year-end is not the only time when you should be planning the best way to minimize taxes, but it is when deadlines are important, and a little extra attention can reap big rewards. This is also a great time to take note of any changes to your income, your expenses or your lifestyle. Then, work with your IG Consultant to make proactive changes to your IG Living PlanTM so you can take full advantage of tax-efficient strategies to enhance your overall financial well-being. Discover more tax planning tips here.