The air is crisp, the leaves are turning, and the kids are starting to get excited about the upcoming holidays this time of year. This is also an excellent time to start thinking about your 2021 taxes and take a close look at where you are now, where you expect to be and make adjustments to ensure you are not surprised by an unexpected tax bill come next April 30. To reduce your tax burden this spring you should begin your year-end tax planning now.
I know, no one likes to think about their taxes, but setting up a year-end tax planning meeting with us can make a big difference for you and your business. Here’s why…
A Lot Can Change in a Year
While we always do some advance planning for this year as we prepare your 2020 returns, those estimates and educated assumptions may have turned out differently than expected. Additionally, many of you may have experienced some unexpected major events this year that would have a tax impact, such as:
- Did you start, expand or sell a business this year?
- Did you purchase and/or sell a house?
- Did you have a child?
- Did you decide to retire?
At RSW, we take the opportunity to factor in the above changes, recalculate your tax exposure for 2021 and advise how much you should remit before the end of the year to avoid interest charges and surprises when it comes time to file your tax return next spring.
Tax Planning Makes Sense at All Income Levels
Great tax strategies exist at all income levels, not just for those that are in the top tax brackets. Here are some areas where we can help you determine the best way to move forward and estimate the potential tax reduction for your specific situation:
- Charitable Giving: If you donate to a registered charity by December 31, 2021, you can receive a donation credit for your 2021 taxes. (Don’t forget to get a receipt though!) Donations of more than $200 qualify for a higher federal rate and provincial rates typically follow suit. Another option to consider is to donate securities with an unrealized gain – which are typically tax exempt – to charity. And since you receive a tax receipt for the fair market value of the security on the day of the donation, this can be a great way to reduce your taxes.
- Tax-Loss Selling: If you have investments that have underperformed and are worth less now than the adjusted cost base, you can dispose of them and show a capital loss. For it to count toward your 2021 taxes however, you must dispose of them by at least December 28, 2021, in most cases. This capital loss can be used to offset capital gains in 2021 and as far back as three years, if you didn’t have any capital gains in 2021.
- TFSA Contributions: First, have you contributed the annual maximum of $6,000 to your Tax-Free Savings Account (TFSA)? We hope so! But that’s not all you can do with this account. You can make up for unused contribution amounts from previous years too. In fact, if this is your first time contributing, you can put in up to $75,500 if you are at least 30 years old and have been a Canadian resident since the program started in 2009.
- RRSP Contributions: Technically, you can make contributions to your Registered Retirement Savings Plan (RRSP) until March 1, 2022, and have it count toward your 2021 taxes. This is a great way to reduce your tax burden and save toward your retirement simultaneously. This is especially true if you turn 71 in 2021 since no additional contributions will be permitted going forward. Most people roll their RRSP into a Registered Retirement Income Fund in their 71st year, but there are other strategies to consider depending on your earned income and tax bracket.
- Capital Gain Realization: Depending on the other factors that impact your tax responsibility, it often makes sense to carefully plan when capital gains are realized. If you expect to be in a higher tax bracket this year than most, it may make sense to defer the sale of securities until 2022 if you expect your tax rate to be lower next year.
Don’t Miss out on COVID-19 Tax Savings Opportunities for Business Owners
While some of the pandemic-era programs have ended, there are still quite a few that business owners can benefit from as well, including:
- Canada Recovery Hiring Program: Extended to May 7, 2022, this provides wage support to help companies hire new staff or offer raises to existing employees if the business is still experiencing a decline in revenues when compared to pre-pandemic levels.
- Hospitality & Tourism Recovery Program: Qualifying businesses can receive up to 75% in rent and wage support if they have experienced both an average monthly revenue reduction of at least 40% over the first 13 qualifying periods for the CEWS and a current month revenue loss of at least 40%.
- Hardest Hit Business Recovery Program: Available from October 24, 2021 – May 7, 2022, this new program is much like the Hospitality & Tourism program but applies to any type of business. It gives wage and rent support of up to 50% for businesses that meet both an average monthly revenue reduction of at least 50% over the first 13 qualifying periods for the CEWS and a current month revenue loss of at least 50%.
This just scratches the surface of the opportunities that we consider when doing year-end tax planning for our clients. It won’t surprise you to also learn that nearly all the options mentioned above are dependent upon other factors being true (or false), so it is important to have a qualified tax expert walk you through each one so you can decide what makes the most sense – and yields the best results – for your individual situation. If you are interested in setting up an appointment, contact me and I’ll be happy to talk to you about your options and help you plan for this upcoming tax season and beyond.