April is the time of the year when individuals and businesses file their tax returns and companies consult their accountants on how to save money doing so. Most business owners don’t realize that you can and should take positive action way before the April filing deadline arrives. Profit Financial Services, a income tax preparation company in Hamilton, notes that there are four mistakes business owners overlook in planning their tax returns:
Businesses not considering tax-loss selling as a tax planning option.
This involves selling investments that have a net loss at the end of the year to counteract capital-gains on other assets or investments. However, to maximize your tax benefits or savings, you must make this sale on or before December 31.
Failure to prepare adequately for retirement.
You may not realize that you can enjoy tax benefits in your early retirement years. When you reach the age of 71, you have the opportunity to wait until December 31st to make your last premium payment to your RRSP before you convert it to a regular annuity.
Did you know that you can postpone getting your Old Age Security pension for as long as 5 years? For every month of delay that you receive your pension after the age of 65, you will have an increase of 0.6% on you future premium payments. Thus, with the 60-month delay, you can receive your pension at 36% higher value.
Not timing the withdrawals from registered plans.
Are you planning to withdraw funds from your RRSP, TFSA or RESP? Did you know that the timing of your withdrawal may impact your tax savings? For example, withdrawing funds from a TFSA should be done by the end of the calendar year. This gives you the opportunity to add to that fund in the ensuing calendar year rather than have a waiting period of two years.
It’s a different case when you are taking money from your RRSP fund. If you wait until the following calendar year to make the withdrawals, you will get an additional year before you are mandated to make new contributions to your plan.
Overlooking tax credits from donations and expense payments.
It is common knowledge that donating to charities has tax benefits. But did you know that you can maximize your benefits by donating before December 31st? Also, if you and your spouse or partner have donated to a charity for at least 5 years and haven’t availed of a tax credit, then you can claim the federal First-Time Donor’s Super Credit (FDSC). This tax credit will give you an extra 25% federal credit for cash that you donated after March 20, 2013. This can give you a federal credit of 40% for charitable contributions up to $200 and as high as 56% if your donations add up to between $200 and $1,000. We’re just talking about the federal government here. You can get more savings from provincial donation tax credits if applicable. Ditto for expense payments. You can claim tax benefits when you pay these expenses. You can maximize on your tax savings by paying these before December 31 rather than on the following year.
Profit Financial Services, an income tax preparation company from Hamilton, notes that most of the suggested activities are done at the years end. In reality, however, tax planning should be done all year round. Don’t wait until April to think about your taxes, contact Profit Financial Services today.