Tax planning is a lot like holiday shopping: If you wait too long, you'll end up in a mad scramble, often losing out on potential savings.
While most of us are not thinking about the holidays or our taxes yet, we should be, says Cleo Hamel, a senior tax pro at H&R Block, because Dec. 31 is the cutoff point when claiming capital gains and losses, donations and other tax exemptions on your 2010 tax return.
"Things are still quiet. You can go through things without a panic," Ms. Hamel says. "When we're in tax season, because there's such a stress about it all, you tend to overlook things."
If you moved, for example, you'll need to notify employers and financial institutions so they can send your income and interest slips to the right place. If you forget, you could be hit with interest on your tax owing, Ms. Hamel says. "Even though you may have forgotten things, the [Canada Revenue Agency] when it comes to income, they know."
Here are some more year-end tax planning tips from Ms. Hamel:
1. Review your stock portfolio. It is a smart strategy to review your portfolio before the year end to see whether you can find a tax advantage in taking a loss or cashing in a gain. Capital losses can be carried back three years or carried forward indefinitely.
2. Add up your taxable income. If you have cashed in some of your RRSP, sold an investment property or received a lump sum payout from an employer, do a rough calculation of your taxable income. There may be ways to reduce your tax bill but you will be limited after Dec. 31.
3. Pool medical expenses. Medical expenses can be claimed in any 12-month period ending in 2010, so it could be beneficial to try to fit known medical expenses into the same 12-month period to maximize your claim.
4. Don't forget your renos. You may have receipts from early 2010 that are eligible for the Home Renovation Tax Credit but you cannot claim them on your 2010 tax return, because the HRTC was only available to be claimed in 2009. If you have eligible receipts, you will need to file an adjustment to your 2009 tax return.
5. Get organized. Trying to find all your slips the day before the tax deadline is never a good thing. If you haven't already, start an envelope or folder to hold all your tax slips and receipts.
6. Save for higher education. To take advantage of the government's Canada Education Savings Grant for 2010, you must make a contribution to your child's registered education savings plan before Dec. 31.
7. Make a donation. If you want to claim a charitable donation on your 2010 tax return, you have to donate before Dec. 31. If you have already made more than $200 in donations in 2010, the amount over $200 will also be worth a 29-per-cent federal credit instead of the 15 per cent for donations under $200.
8. Plan your moving day. Check the provincial tax rates before you move to a new province. You are subject to provincial tax based on where you reside on Dec. 31, so if there is a substantial difference in the tax rates, you may want to either speed up or defer the move.
Join us Monday, Nov. 1, at 1 p.m. (ET) for an online tax-planning discussion with Ms. Hamel.