6 financial tasks to do before year end
It’s not too late! Here are a few simple, yet meaningful year-end financial tasks that could save you money and help you set yourself up for success in 2019.
1. Consider tax loss selling
In a year when capital markets struggled, you may want to realize any losses in the current year, giving you the ability to offset realized capital gains in the current year and going back three years. Given market performance was stronger in 2015 and 2016, you may have gains that are still eligible for offset.
2. Consider tax planning for your personal corporation
If you have a personal corporation that is eligible for the small business deduction, you probably already know about changes to taxation coming into effect next year. Beginning in 2019, passive income above $50,000 reduces the small business deduction. The amount of passive income is calculated based on the previous tax year (e.g. 2018). Tax loss selling in your corporation this year will reduce your capital gains realized in 2018 and taxable gains are part of the passive income calculation in 2019. You should also talk with your tax advisor about whether it is advisable to pay bonuses or dividends in 2018. This strategy would reduce the investment base inside the corporation on which passive income will be calculated in 2019. In other words, doing something this year that will help in future years.
3. Make your charitable contributions
To receive the tax credit for your donations to qualified charitable organizations, you must make them before the year ends on December 31st, as there is no ‘carry forward’ or ‘catch up’ provision. You either use it or lose it. Don’t forget you can also donate securities, thereby sheltering any capital gains. If you have a donor-advised fund or a private foundation established, you can make your contribution and receive the tax credit in the current year without having to decide which charity funds should go to.
4. Make any RESP contributions
Unlike other registered accounts, the deadline for RESP contributions is the final day of the year, December 31, 2018. To receive the maximum annual grant provided by the federal government ($500), you need to make a $2,500 contribution in the same year. If, in previous years, you haven’t contributed the maximum amount, you can catch up and still capture the government grant from the previous year. For example, if you contribute $5,000 this year, the RESP will receive a grant of $1,000 in 2018. Given the value of compounding, it is better to get the funds working as early as possible.
5. Make your TFSA contribution
The maximum contribution for 2018 is $5,500 and the deadline is December 31, 2018. There is no tax deduction for the contribution, but the money invested can grow tax free. Given the sell-off in the stock market in 2018, having cash at the ready in your TFSA would allow you to take advantage of a buying opportunity. The annual TFSA contribution limit rises to $6,000 in 2019. Contributions are cumulative, so you can catch up any year you choose. If you have never contributed to a TFSA, you can open one and contribute a maximum of $57,500.
6. Assess your goals against your 2018 objectives
Use downtime over the holidays to reflect on the goals of the previous year. Was it your objective to establish a charitable foundation? Pay down debt? Simplify your investments? How did you do against your goals and what changes do you need to make for 2019? With family gathered over the holidays, it is also a good opportunity to find out what changes or issues are going on in their lives that might impact your planning. Is someone contemplating going back to school? Is there a new baby on the way? Does someone need financial help? Reviewing your family composition and circumstances will help you to get clear on what needs to happen in your wealth management plan in 2019, such as updating your estate plan or setting aside funds.