The family’s tax returns are a great place to look for year-end planning opportunities that will create new money for that Christmas vacation or will help to pay off those credit cards come January. But the time to focus on this process is before the snow flies. Here are my top three tips for enhancing your family’s tax planning process—a few things you can do now so that you’ll have some extra “gold dust” at Christmas time:
- Recover taxes owing from prior years. Tax refunds resulting from errors and omissions may be recovered for up to 10 years. So, if you’re a delinquent filer, now is the time to get caught up. Not only might you tap into refunds that could be waiting for you from previous years, but you can also avoid potential gross negligence or tax evasion penalties. If you have been dutifully filing your tax returns and simply have missed an important tax-saving provision in a previous year, be sure to adjust your tax returns by December 31, before the time runs out on the 2015 year. That’s especially important for building up your RRSP contribution room and recording those capital or non-capital loss carry-forwards.
- Don’t overpay your quarterly instalments. If you pay your income taxes in quarterly instalments, you may have an instalment remittance due on December 15 or, in the case of farmers, it is due December 31. If you haven’t yet paid, be sure to calculate your estimated income for the current tax year first. If your income is lower than in past years, you may be able to reduce that payment or not make it at all. Simply use the optional “current year” or “prior year” methods of calculating your instalments. This is a nice way to create new capital for investment purposes before year end or to finance that much-needed vacation!
- A TFSA is a must. Give your adult children a valuable Christmas gift: open a Tax-Free Savings Account and make sure you and/or they maximize the opportunity to put up to $10,000 in it this year. With a new government who has indicated the $10,000 limit will be notched back in the future, this is an important opportunity this year. The earnings that accumulate in the account are tax free and using this valuable savings room can build family millionaires.
Most people unknowingly leave tax savings on the table. But a tax-wise investor becomes wealthier over the long run regardless of the economic cycle—or new government. Be tax-wise and maximize your potential to reduce your after-tax income before year end!