If you're a high net worth individual, business owner or incorporated professional, year-end is a great opportunity to review your investment portfolio and evaluate your year-end tax strategies.
As 2011 comes to a close, consider these five year-end 'financial to-dos' to optimize your investments and tax-savings.
Wait until the New Year to buy assets
Aside from the Santa Claus rally skewing prices, you don't want to potentially be on the hook for more taxes for the 2011 calendar year. Even if you're only holding assets for a short period of time, should that investment pay out a big distribution, you're going to be on the hook for the applicable taxes.
If the timing of making the investment is not critical, consider waiting until January 1 to buy new assets so you can get the full benefit of those distributions for the year, instead of just the tax implications.
Take advantage of "Tax Loss Selling"
With the erratic behavior of the markets this year, have a look at your investments and evaluate your capital gains and losses. If you've paid taxes on capital gains in past years, but experienced capital losses in 2011, now is the time to see if you can "carry back" those losses and retroactively recoup some of those taxes you paid.
Use major charitable donations to offset your income tax bill
Make sure you look at charitable giving in relation to your overall income. If you employ a dividend compensation strategy, find out how much of your income will be personally taxable (as opposed to corporately), because those who make donations using a donor advised account can use the value of their gifts to offset their 2011 personally taxable income.
Plan your RRSP and RESP contributions
The most pressing here are your RESP (Registered Education Savings Plan) contributions, as they are due on December 31. Be sure to talk to your advisor and find out what it will take to top up your annual contribution.
RRSPs are less time sensitive (not due until March), but with the tax year ending, it's good to look at the big picture (especially if you are a high income earner and/or have a dividend compensation strategy) and start planning what you need to contribute now.
Revisit your risk management
Level cost insurance has been underpriced for quite some time and in 2011, virtually every insurance company increased their rates. Unfortunately, it doesn't look like they're finished and a few major life insurance carriers have already said they will be increasing their rates again early in the New Year. It's very likely others will follow suit.
If you haven't looked at your insurance planning recently, now is the time to do so. Rates may increase anywhere from 6-20 per cent or more, so talk to your adviser about "managing the risk" in your risk management portfolio.
Here's a quick calendar checklist to keep you on track with these year-end tips.
Dec 30, 2011: Settlement date of trades for tax loss selling in Canadian markets (With the holidays, this means sell date of Canadian securities will have needed to tax place by Dec, 23, 2011)
Dec 30, 2011: Settlement date of trades for tax loss selling in U.S. markets (The sell date of US securities will have needed to tax place by Dec, 27, 2011)
Dec 31, 2011: RESP contribution deadline
Dec 31, 2011: Donor Advised Account charitable donation for 2011 tax year
Jan 1, 2012: Once again, consider buying assets with income distributions
Jan 3, 2012: Apply for Level Cost life insurance to lock in the current rates
Tis the season to be jolly, so don't let poor planning leave a lump of coal in your financial stocking. Hopefully the above strategies will give you something extra to celebrate this year.
David Sung is the president of Nicola Wealth Management, a midsize financial planning firm that works with business owners, professionals and other high net worth individuals reach their financial goals.