Usually people begin to think about their savings and finances closer to the time of filing in April. The problem is that if you do not do the financial decisions before Jan of that year, than you lose the potential tax benefit for that year. For instance, if you wanted to create some tax savings for 2011 it had to be in that fiscal year – Jan. 1, 2011- Dec. 31, 2011.

Jamie Golombek, wrote an article on this topic and suggested 3 tax resolutions to think about:

1. Get Yourself Organized
It is too late for this year, but you can start to get yourself organized for 2012 tax year. If you are someone who throws things into a corner, misplaces receipts and other important tax info, now is the time to set up a filing system. Keep it simple and one that YOU can understand. You can do this physically as well as on-line: creating specific folders that you can put all things related to your tax info ( for example, charitable donations receipts).

If you use your part of your home for business, be sure to keep records, either paper or electronic, of bills for cell and home phone, electricity, heating, mortgage % of sq. footage, maintenance, property taxes and home insurance. As well, as any other expenses that are directly related to your business.

If you day-trade your own portfolio, make sure you track all buy/sell trade confirmation slips so you can properly calculate both the adjusted cost base of your investments when you come to sell them and accurately report your proceeds of disposition.

2. Plan Charitable Giving in Advance

Consider setting up charitable-donation budget for 2012 so you can give in the most tax-effective way possible by donating appreciated stock (wouldn’t that be a good position to be in!!) or mutual funds directly to charities. Not only do you receive a tax receipt for the fair market value of the stock or funds donated, but you also eliminate any capital gains tax bill on the accrued gains.

An easy way to do this is to establish a donor-advised fund (DAF) through a public foundation and transfer the appreciated stock or mutual funds to the foundation at the beginning of the year. Then, as requests for donations come in during 2012, you can direct your DAF t write the cheques. You’ll get the tax break up-front and make the donation in the most tax-effective way possible by donating “in-kind” and eliminating a future capital gains tax liability.

3. Maximize Tax-Free/Deferred Savings

With a choice of 4 types of registered accounts to choose from, make sure that you are prioritizing the order of your tax-free or tax-deferred savings. You need to do what makes sense for your right now. Every person’s needs are different. The choice of 4 are the following:

RDSP – Registered Disability Savings Plan
RESP – Registered Education Savings Plan
TFSA – Tax-free Savings Account
RRSP – Registered Retirement Savings Plan

If you are saving for someone in the family who qualifies for the disability tax credit and is under 60 years of age, then the RDSP is the first priority. In Canada, not only can up to $200,000 of contributions grow tax-deferred, but the RDSP may be entitled to receive up to $3500 annually in Canada Disability Savings Grants (with a $70,000 lifetime maximum) and an additional $1000 annually in Canada Disability Savings Bonds (with a lifetime maximum of $20,000).

Next is to save for RESP or each minor child (under the age of 18) for post-secondary education. In Canada, by contributing at least $2500 for each child annually, you can take advantage of the 20% matching Canada Education Savings Grant (CESG). If you have started a little late consider contributing $5000 per child per year and collect the annual maximum of $1000 CESG per child.

If you are not sure whether to save for your TFSA or RRSP, one advisor suggests that if you cannot do both than if you earn $53,000 or less, maximize your TFSA contribution first since you are in the lowest federal tax bracket and likely pay combined federal and provincial taxes at about 20%.

Chances are your marginal effective tax rate upon withdrawal will be higher, particularly if you have RRSP savings that, when withdrawn, could cause claw back of various income-tested government benefits and put you into a higher effective tax bracket.

For those outside of Canada, I suggest you sit down with a financial advisor and ask what tax savings and tax deferred programs are available to you that will benefit you when you file your taxes next year.

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