December 31 is fast approaching and for many individuals and businesses, this represents the end of your tax year. Here are my top tips for individuals and businesses to consider as the year end draws near.
Charitable donations
Charitable donations are eligible for up to 50.4% tax credit in Manitoba, depending on your income. Donations are a fantastic way to support great causes, feel great, and have the government contribute to your cause. You will receive 25.8% tax savings on the first $200 of charitable donations and 46.4% thereafter. If your taxable income is greater than $235,676, you'll be eligible for the 50.4% tax savings thereafter. Make sure the charity is eligible to issue official Canadian tax receipts and the donation must be paid by December 31 to be eligible to claim on your 2023 tax return.
Medical expenses
Medical expenses are probably the most missed tax credit. Medical expenses can be claimed for a tax credit if they were paid by December 31, so if you owe your dentist money, pay by December 31 to be eligible to claim. If you have not been keeping track of your medical receipts, now is a great time to start collecting documents. Dental, vision, medical services, prescriptions, and group health premiums all qualify. Make sure you keep proof of payment. Total family medical expenses must exceed 3% of your net income to qualify or $1,728, whichever is less.
Make Home Accessibility renovations
Seniors eligible for the Disability Tax Credit may be eligible to claim the Home Accessibility Tax Credit with certain home renovations. The tax credit equals 15% of up to $10,000 for home renovations that permit seniors to gain access to, or to be mobile or functional within, the dwelling or reduce the risk of harm to the senior within the dwelling or in gaining access to the dwelling. To be eligible, payment must be made by December 31 for work performed or goods acquired in 2023.
Convert your RRSP to a RRIF if 71
If you turned 71 in 2023, you must ensure your RRSP is converted into a RRIF or registered annuity by December 31. Talk to your investment advisor to ensure this is done.
Make TFSA withdrawals
If you are considering a withdrawal from your TFSA in the coming months, consider making the withdrawal before the end of the year. TFSA withdrawals reset your contribution limit at the end of each year, and you can avoid having to wait until 2025 to recontribute the withdrawn amount to your TFSA.
Tax loss selling
You can consider selling investments with losses to offset capital gains already realized in the year. For the loss to qualify, it must be settled in 2023 and the trade date must be no later than December 27, 2023. If you plan to repurchase the investment, no "affiliated persons" may buy it back for at least 30 days before or after the date of sale. "Affiliated persons" include you, your spouse, corporations controlled by you or your spouse, and includes RRSP and TFSA accounts.
Capital asset purchases
If you have a business or rental property and your year end is December 31, or claim your vehicle on your tax return, consider purchasing new capital assets, including vehicles by the end of the year. Immediate Expensing is a temporary tax measure that allows individuals to purchase and immediately write-off the full cost of most depreciable assets including equipment, furniture, computers, and vehicles. To receive the deduction in 2023, the asset must be purchased and put into service by December 31, 2023 and the program ends on December 31, 2024 (ends December 31, 2023 for corporations). Certain long-lived asses do not qualify such as buildings, goodwill, roads and pipelines.
Business/rental supply purchases
If you have a business, rental property, or eligible employment expenses, you may want to stock up on deductible supplies that you will be using soon. Consider purchasing an order of paper, toner, receipt books, printed material, business cards, anything that you will be using anyways in the coming weeks and months and get your deduction a year early.
Family income splitting
Business owners (and even rental property owners) may have an opportunity to split income with family members. Planning is required to properly execute a tax plan that includes family members. If reasonable salaries are declared, source deductions are likely due by January 15th, 2024. Special rules may apply to dividends paid to family members and we will need to be consulted.
Passive income and small business deduction
Some business owners who have active business income and passive investment income in their corporations risk losing their small business deduction if their passive income exceeds $50,000 and will completely lose the deduction if passive income exceeds $150,000. This is a good time to review your passive income and consider triggering gains or losses to maximize your access to the small business deduction.
Well, that's my Top 10 Year End Tax Savings Tips for my clients and others. Some are easy and some are very complex. Either way, we are always here to help navigate the tax world.
Year-end tax planning is crucial for making the most of potential savings, and these tips from tax consultants are incredibly helpful. By reviewing your financial situation before the year ends, you can implement strategies such as maximizing retirement contributions, harvesting tax losses, and making charitable donations to reduce taxable income. It's also smart to check your tax withholdings to avoid a hefty bill come tax season.