Holiday shopping, holiday baking, holiday decorations…and now, holiday finances? The festive season can get so bogged down with stuff to do that there is little time left for actual "holiday". Even pop-star Rihanna recently complained she has been too "drenched in work" to start her gift shopping.
Yet there is one important area that usually gets forgotten in the festive rush: your finances. If you're like many people, the most attention you pay to your finances this time of year is a quick glance (and a wince) at your credit card statement. But the end of the year is a key time to take care of a few specific aspects of your personal finances. So in the spirit of seasonal list-making, we've drawn up eight tips for you. Grab a mug of mulled wine and get down to business!
1) Cut your losses: While you rarely want to sell an investment for less than you paid for it, there are times when it makes good tax sense do so. If you know you have a large tax bill looming, scan your portfolio for any declining stocks you can sell off for a capital loss. You can then report the loss on your upcoming tax return to offset some of your capital gains.
2) Stock up: Those companies whose shares have declined over the year often drop even lower in December as thousands of shareholders do as above and cut their losses. If you know the fundamentals of a company are strong despite its languishing stock price, this is a great time to pick up an undervalued stock at a bargain price.
3) Rally ho: Then there are the companies that have performed well over the year. These stocks sometimes have a share price surge in December, known among traders as the Santa Claus Rally. Keep your eye on the stocks you own — you may get the chance to sell them for a tidy profit.
4) Gather ye tax receipts: Speaking of taxes, you might want to do a quick check on your tax receipt situation for the year. The more deductions you make, the lower your income will be and the less you will owe in taxes. If you still have room for some more deductions, you have from now until December 31st to collect a few more tax-deductible receipts.
5) Give your shares: One great way to max out your charitable tax-deductions is to donate shares, mutual funds or ETFs, instead of donating cash. Choose investments that have risen in value and are held within your non-registered portfolio. This way, you will receive a tax receipt for the full value of the donation and you won't trigger the usual capitals gains tax that comes with selling an investment whose value has increased.
6) Wait to buy funds: Mutual funds distribute their income and capital gains to anyone holding units at their year-end: often December 31st or even mid-December. This means that if you buy units in an unregistered account in December, you will soon receive the fund's annual distributions along with a tax bill for gains you haven't even enjoyed. If you hold the mutual fund in an RRSP or a TFSA however, don't worry, the distributions will be tax-free to you.
7) Check those distributions: If you do own mutual funds in a non-registered account, now is a good time to check with the mutual fund company and find out just what those annual distributions will actually add up to, so you can figure out how much tax you will owe. This gives you a few weeks to cash in a tax loss or gather a few more receipts if you need to offset the distribution income.
8) Plan your tax shelters: January 1st opens the door to brand new contribution room in your RRSP and TFSA accounts. The earlier in the year you max out your contribution room, the more time that compound interest can do its magic and the faster your nest egg will grow. Plus, if you make your RRSP investment in January or February, you can choose to use the deduction on either your upcoming 2012 tax return or hold it for your 2013 tax return — whichever suits your situation best.
Start the year off prosperous
Finding time to sort out your finances before the end of the year is not easy. But if you can squeeze it in between the concerts and cookies, you will have a much better chance at starting off the new year in a much more prosperous way. Cheers to that!
GoldenGirlFinance.ca is a free personal finance and education site for women.
Nothing contained herein is intended to provide personalized financial, legal or tax advice. Before implementing any financial strategy, you should obtain information and advice from your financial, legal and/or tax advisers who are fully aware of your individual circumstances.