Key Tax Changes to Address Before Year End
As the year comes to a close, it's essential to consider several tax changes that require attention before the end of the year. These changes include tax-loss selling, the introduction of tax-free first home savings accounts (FHSA), and proposed alterations to the Alternative Minimum Tax (AMT) system.
With certain sectors experiencing declines in 2023, such as real estate, communication services, and utilities, now may be an opportune time for tax-loss selling. This strategy involves selling investments with accrued losses in non-registered accounts to offset capital gains elsewhere in your portfolio. It's crucial to settle these trades by December 27 to ensure the loss is available for the current or prior three years.
First Home Savings Accounts (FHSA)
The government recently introduced tax-free FHSA to help Canadians save for their first home. Contributions of up to $8,000 per year (with a lifetime limit of $40,000) can be made towards a tax-free down payment. Contributions made by December 31 can be claimed as a tax deduction on the 2023 tax return. Unused contribution room carries forward to the following year.
Alternative Minimum Tax (AMT)
Proposed changes to the AMT system, effective January 1, 2024, may impact taxpayers. These changes include raising the AMT rate, increasing the AMT exemption, and limiting certain exemptions, deductions, and credits. Taxpayers with taxable income over $173,000 and various income sources or deductions may be affected. It's advisable to consult a tax advisor to assess potential AMT implications and consider making charitable donations in 2023 to maximize deductions.
In conclusion, taking care of these tax changes before the year ends can help optimize your tax planning strategies and minimize tax liabilities. Consulting with a tax professional is recommended to ensure compliance and make informed decisions based on your individual circumstances.
How Year-End Tax Changes Could Impact New Businesses
As the year winds down, new businesses need to pay close attention to several key tax changes. These changes could significantly impact their financial planning and overall business strategy.
Implications of Tax-Loss Selling
For startups that have invested in sectors like real estate, communication services, and utilities, the decline in these sectors could be turned into a strategic advantage through tax-loss selling. This could help offset capital gains and potentially lower tax liabilities, improving the financial health of the business.
First Home Savings Accounts (FHSA) and Employee Benefits
The introduction of tax-free FHSA could be leveraged by businesses to enhance their employee benefits package. By contributing to their employees' FHSAs, businesses can not only attract and retain talent but also claim tax deductions, creating a win-win situation.
Changes to the Alternative Minimum Tax (AMT)
The proposed changes to the AMT system could potentially increase the tax burden for businesses with taxable income over $173,000. New businesses need to be proactive and consult with a tax advisor to understand the implications and plan accordingly.
In conclusion, these year-end tax changes present both challenges and opportunities for new businesses. By taking timely action, businesses can not only ensure compliance but also optimize their tax planning strategies.