December often zooms by when you’re busy buying gifts, baking cookies, attending parties, and shovelling snow. It may be tempting to just enjoy the holiday season, but the last month of the year is also a good time to think about year-end financial planning.
Luckily, you have plenty of time between now and the end of the year to take any action that is required.
Here are 10 things to consider to start the new year in good financial shape.
Year-End Financial Planning Checklist
1. Schedule an appointment with your financial planner or advisor
The end of the year is a good time for a financial checkup. A financial planner can help your look ahead and prioritize your goals for the coming year. A year-end portfolio review can identify any areas that need attention and ensures your monthly savings is still in line with your future needs.
If you turned 71 this year give yourself plenty of time to switch your RRSP to a RRIF before December 31. You also have only until the end of December to make your final RRSP contribution.
2. Spousal RRSP contributions
If you are investing in a spousal RRSP, make the contribution in December as opposed to January or February to help get around the 3-year attribution rules.
Investing in a spousal RRSP in December 2017 means you might be able to take money out of the spousal RRSP in January 2020. Deferring the contribution by only 1 month to 2018 means that you must wait an extra year (January 2021) before you can withdraw the money to avoid attribution of income. A one-month difference in the contribution date can make a year’s difference in how the withdrawal is taxed.
Note that a contribution to a spousal plan in future years will extend the attribution dates. Attribution is based on the latest contribution to any spousal plan.
3. Contribute to a RESP
Unlike the RRSP deadline, which is 60 days after the end of the year, the RESP deadline is December 31.
If you have not maximized RESP contributions in past years, you can catch up one year at a time. There is no annual contribution limit for an RESP but there is a lifetime limit of $50,000 per child. On that basis, you could contribute $5000 to the RESP and get $1000 of the CESG if you are catching up from previous years. You could contribute more than $5000 but you would not get more than the $1000 CESG.
An RESP contribution would make a perfect Christmas gift this holiday season.
4. Make charitable donations
If you are planning on making charitable donations, make sure you make them before the end of December so that you can take the tax deduction on your 2017 tax return. Instead of donating cash, you might want to think about whether to donate appreciated securities. Not only will you get a receipt for the fair market value, but you pay no capital gains tax on that appreciation.
5. Use up FSA money
If you have a flexible spending account for health care at your workplace, see if you can order new glasses or schedule that dental work you’ve been putting off. Otherwise you’ll lose any unused funds once we ring in the new year.
6. Consider postponing ETF or mutual fund purchases
If you have a taxable investment account, consider putting off buying investments such as ETFs or mutual funds that make year-end taxable distributions. Why own an investment for one month and be dinged with a full years’ worth of taxable income? And, since year-end distributions tend to lower the price, you could also consider making your RRSP and TFSA contributions early in January.
7. Make TFSA withdrawals
If you were planning on making a TFSA withdrawal in the next few months, consider making the withdrawal before the end the year. If you make the withdrawal in December, you could recontribute that amount as early as January 1, 2018. But if you waited until January to make the withdrawal, you won’t get the contribution room back until January 1, 2019.
8. Defer income and accelerate expenses
Income that arrives in 2017 is taxable in 2017, so in some instances, it might make sense to delay that income to delay the tax bill. This is a good strategy for a small business owner, but a lot of corporations can be flexible on this issue and they might be willing to pay a bonus on the first of the year.
However, if you will likely see a tax increase in 2018, you would be better off taking the income before December 31.
9. Stay current on tax breaks
Tax breaks can change from year to year so it’s important to stay current. The non-refundable Transit pass credit has been eliminated and you can only claim what you paid up to June. The education and textbook credits have been eliminated as of January 1, 2017 and only prior unused amounts from previous years can be claimed, but only the student can claim these amounts – not parents, grandparents and spouses as before.
If you factored in these credits on your TD1 make sure you update the form for next year.
10. Organize your medical receipts
One of the more time-consuming tax entries is your medical expenses. Rather than assembling dozens of individual receipts, ask for an annual printout that details both the total cost of your prescriptions and your own out-of-pocket expenses. Most pharmacies offer this service. The earlier you ask the better if your pharmacy is a busy one.
Don’t forget other regular health practitioners such as physiotherapists. They can give you a print-out, too.