Must do Year-End Tax Planning

With the end of 2011 fast approaching, here are a few simple tax planning ideas to consider before the new year begins.

Tax loss selling – Have you managed to turn a profit on some of your portfolio holdings this year? Consider selling some “dogs” at the end of the year to realize capital losses and eliminate the tax that would otherwise be due on those gains.  Be aware of the settlement date to ensure the loss is recognized before year end and remember to avoid the superficial loss rules. The superficial loss rules preclude you from reacquiring the security that was sold for 30 days after the date that the sale transaction settled.

Defer, defer, defer – Deferring a capital gain to the next tax year is a popular year end tax planning technique for a number of reasons.  First, if you expect your marginal tax rate in 2012 will be lower compared to your rate in 2011, then it would be beneficial to defer taxable income to the subsequent year.  Second, realizing capital gains at the end of the year will trigger tax that will ultimately be due April 30, 2012, while deferring the gain to early 2012 will push the tax liability to 2013. Finally, net capital losses in 2011 can be carried back to 2010, 2009 and 2008 and applied against capital gains realized in those tax years to recover taxes previously paid.  However, before capital losses can be carried back, they must first be used to offset any current year capital gains.  Therefore, realizing capital gains in 2011 can reduce the amount of losses available to carry back.

Capital asset purchases – as a business owner, if you intend to purchase capital assets for your business, you should consider buying them before year-end.  As long as the asset is available for use, then the business can claim a portion of the cost as depreciation (Capital Cost Allowance or CCA) for tax purposes.

S+C Partners LLP wishes you peace and prosperity in 2012!

Tags: Capital Cost Allowance, Proactive Financial Advice, superficial loss rules