A checklist of tax savings before 2013

While most of us won’t be filing our 2012 tax returns until the new year, there are few options for reducing your tax liability once you ring in 2013. The main one is RRSP contributions, which can be made until March 1. After that, you can dig for every tax deduction and credit as you file your T1. Below is a checklist of 14 simple things you can do before year-end to save money—but you’ll have to get on them right away.

Reach back and dig up tax gold.

You have 10 years to adjust for errors or omissions in tax filings, so as of midnight Dec. 31 you lose access to 2002 returns. Miss this and you can no longer claim refunds, build RRSP contribution room that year, or claim capital or non-capital losses. If you have missed big deductions like moving expenses or disability tax credits, you can adjust all returns between 2002 and 2011 to recover these or other big misses.

Give to charity.

The federal government rewards you well when you give money or other gifts to your favourite charity. You’ll get the top benefit when gifts are over $200: a 29% federal credit. Below $200 there’s a 15% credit. In both cases, add provincial tax credits on top. To get the maximum credit, combine both spouses’ donations on one return. Instead of cash, donate securities with accrued gains to get donation receipts at fair market value and avoid paying capital gains. If you have losers and want to donate, sell them to generate losses that offset capital gains in this year (unabsorbed losses can be carried back or forward), then donate the cash.

Make political contributions.

Earn a maximum credit of $650 when contributing $1,275 to political parties. The credit is calculated as 75% of the first $400, 50% of the next $350 and 33.3% of up to $575 of the balance. A $100 political donation generates a $75 credit, more than the same amount given to charity.

Move up medical appointments.

Medical appointments to book before year end include optometrists, therapeutic massages, buying glasses, contacts, hearing aids, incontinence products, travel insurance premiums, or van alterations for wheelchairs. Pay outstanding medical bills by Dec. 31 to claim them this year.

Buy business assets and supplies.

Self-employed or commissioned salespersons can boost deductions by buying new cars or office supplies by year end. Buy new tires or maintenance items and top up the gas. Keep auto logs current, recording mileage on odometers on Dec. 31.

Plan your bonus.

December is the time for Christmas bonuses or tax-free perks like non-cash gifts under $500 for employees. If receiving a bonus, avoid a one-time higher tax bracket and corresponding spikes in withholding taxes by asking payroll to annualize the income and taxes over the whole year.

Watch for rookie salesperson traps.

You need offsetting income against which to claim sales expenses. So if your first commissions aren’t payable until 2013, hold off buying promotional items for clients. Make a Happy New Year’s gift instead, so expenses are deductible next year.

Create RRSP earned income.

If self-employed, create enough income to max out RRSP contributions. If 2012 earned income is $132,333 you’ll earn the maximum $23,820 contribution room for 2013.

Make final RRSP contribution.

If 71, convert RRSPs to a RRIF and consider a final contribution.

Capture RESP and RDSP grants.

Contribute to Registered Education Savings Plans or Registered Disability Savings Plans by year end to score grants and bonds. For RESPs that’s 20% of contributions up to $2,500; for RDSPs, you may get a 3:1 match on the first $500 and 2:1 on the next $1,000 if your family income is under $80,000.

Review your Dec.15 installment.

If income dropped compared with 2011, you may not need to make a mid-December installment. A preliminary tax return can make sure your installment is accurate.

Preserve your benefits.

If unemployed and collecting taxable Employment Insurance benefits, you may suffer clawbacks of regular benefits if your net income exceeds $57,375 in 2012. Avoid by making an RRSP contribution.

Time receipt of lump sums.

Pay dividends from family businesses in January, not December. Plan the sale of income property to close in new year and defer tax until April 2014.

Plan inter-provincial moves.

If accepting a job or starting a business in a new province with lower tax rates, move before January.

Performed properly, year-end tax planning should be able to help you reduce your overall tax burden. So file your return early in 2013, using your savings to fund smart investments—like your Tax Free Savings Account—for a tax-free retirement and a golden future.—Evelyn Jacks

Evelyn Jacks is the author of Jacks on Tax and Essential Tax Facts. She blogs at evelynjacks.com and tweets as @evelynjacks. Look for her columns in upcoming issues of MoneySense magazine.