Archive for November, 2010

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Give Yourself a Special Gift: A Forgotten Tax Refund

It’s truly surprising how many people are behind in their tax filing obligations—for multiple years in some cases, it seems.  This could be particularly expensive, unless they know about and take advantage of Taxpayer Relief provisions.   The tax year 2000 is the one to watch for now, as December 31, 2010 is the last day allowed for adjustments to that return.
 
Yes, that’s right.  It is possible, to reach back to recover errors and omissions on federal tax returns for up to ten prior years.  Such a proactive stance could obviously help taxpayers recover many thousands of dollars in missed tax overpayments and refundable tax credits.
 
However, filing prior missed returns can also help taxpayers build important “contribution room” for Registered Retirement Savings Plans (RRSPs) and Tax Free Savings Accounts (TFSAs).  It can also ensure that capital losses, which can offset capital gains in the future are recorded, and carry over provisions for charitable donations, tuition and education amounts or student loan costs are available for future use.
 
Remember, it’s your legal right to prepare your return to your family’s best tax benefit by digging for every tax deduction and credit you are entitled to.  This includes filing missed prior returns or adjusting for errors or omissions on prior filed returns, which can bring additional tax refunds to your door.  
 
And that would be an excellent Christmas present to yourself, don’t you think?

Planning for Retirement Income Includes Planning to be Single

When it comes to your income, things change after age 65. Canada Pension Plan benefits must begin and Old Age Security is received; thereby raising taxable income. Many Canadians also begin to melt down their RRSP accumulations; usually in the hands of the lower income earner first. The timing of those withdrawals, for maximum tax efficiency, is critical in creating the most purchasing power possible. 
 
Yet, we often fail to take into account that by the time public pension benefits begin to flow for many Canadian couples, a significant number will face the illness or death of their partner. Not only do we fail to take this into account from a personal life change perspective, the financial consequences can hurt, too. Now, filing as a single taxpayer, there are no further income splitting opportunities, cash flow levels change and tax burdens often increase.
 
Investment product selection and timing, therefore matters, and it’s important to have the conversation about this early. For example, one way to eliminate clawbacks of the Old Age Security and the Age Credit is to stop generating taxable investment income by utilizing a Tax Free Savings Account. Capital gains income can be eliminated early in retirement, by choosing investments that defer the tax until deemed or actual disposition later in life. Adjusted Cost Base levels can also be bumped up during the process of filing a final return for a deceased spouse, in order to minimize tax later for the survivor.  
 
The moral?   Tax efficient investment product choices together with sound planning for the unthinkable realities of life and death can significantly reduce the impact of clawbacks in the present, thereby increasing cash flow, while preserving capital and maximizing real returns on investments over the long term. When your tax and financial advisor together, it can really pay off.

The Goal is to Do Your Best, Financially Speaking

The elementary school in which I voted in the Winnipeg civic election last week was filled with inspirational posters to help young students prepare to reach their potential.  One simply said “The goal is to do your best.”  It’s something parents routinely tell their kids, as they struggle to find ways to fulfill their potential.
 
Children who habitually do their best grow into adults who strive for continual self-improvement, deeper relationships with family, friends and colleagues, and the independence, peace of mind  and happiness that comes with achieving one’s potential, day after day.   That includes the potential to accumulate, grow, preserve and transition significant wealth.
 
Those at the end of a financial goal-setting process can use the same benchmark to evaluate results.  Did you do your best managing your precious resources of time and money?  Did you strive to learn more about your personal finances, investments, taxes, estate planning, debt management?  Did you apply what you learned to the decisions you needed to make?  Did you know better, but choose a less desirable route, none-the-less?  
 
In a country when many are both illiterate and financially illiterate, perhaps expert help was needed along the way to “do your best,” financially speaking.  This involves the skills to choose and work with the right team of financial advisors to get the financial results you want. Do you know how to do your best to help yourself to this kind of help? 
 
When it comes to doing your best with your money, it’s complicated, indeed.  Yet, I am inspired by an age old quote written by a famous artist, Leonardo da Vinci, which provides direction on how to do your best:   “I have been impressed with the urgency of doing. Knowing is not enough; we must apply. Being willing is not enough; we must do.”
 
It’s year end; there’s lots you can do to manage your time and money now to be tax efficient before 2011.  Seek help if you need to.  And consider this:
 
It’s your money; your life.  Doing your best, financially speaking, includes making room in your calendar and your budget to work on improving your personal net worth.