As the calendar inches toward December 31, it’s the perfect time to get your financial house in order. Taking the right money moves to make before the year ends can set you up for success in the coming year while maximizing tax benefits and savings opportunities.
Whether you’re looking to reduce taxable income, grow your investments, or simply tidy up your financial habits, there’s no better time than now to take action. Let’s dive into some practical, relatable ways to finish the year strong financially!
1. Review and Maximize Your RRSP Contributions
An RRSP (Registered Retirement Savings Plan) is one of the most powerful tools Canadians have to save for retirement while reducing taxable income. Although the RRSP contribution deadline extends to the first 60 days of the new year, contributing before year-end ensures your investments start growing tax-deferred sooner.
Why It Matters Now
Let’s say you earned $90,000 this year and contribute $10,000 to your RRSP. This reduces your taxable income to $80,000, which can save you thousands of dollars in taxes depending on your province. Personally, I always aim to contribute enough to maximize my tax refunds both for this year and the next. It’s a win-win for lowering taxes now and growing your retirement savings!
Quick Tip:
If you’re unsure of your contribution room, log in to your CRA My Account to find out. And don’t worry if you can’t contribute the full amount—anything unused carries forward to future years.
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2. Take Advantage of Your TFSA Contribution Room
A TFSA (Tax-Free Savings Account) is like a gift that keeps on giving. Any income or gains you earn in this account is completely tax-free, and your unused contribution room carries forward indefinitely.
Why It’s a Smart Move
Imagine you have $5,000 sitting in your savings account earning 1% interest. If you move that money into your TFSA and invest it in an ETF earning an average 7% annually, the gains you make won’t be taxed. Over time, this can result in significant savings compared to taxable accounts. Before the introduction of the FHSA, the TFSA was always my top priority for saving and investing.
Pro Tip:
Start small if needed. Even a $500 or $1,000 contribution gets your money working harder for you.
3. Open or Contribute to an FHSA if You’re Saving for a Home
The FHSA (First Home Savings Account) is a new tool for Canadians looking to buy their first home. You can contribute up to $8,000 annually, and contributions are tax-deductible, just like an RRSP.
How This Helps
If you’re planning to enter the housing market but still saving for a down payment, an FHSA can provide a significant boost. For instance, contributing $8,000 this year not only reduces your taxable income by the same amount but also allows your savings to grow tax-free for future home purchases.
Personally, since I’m still saving for a down payment, the FHSA has become my top priority since its introduction.
Don’t Forget:
Unused FHSA contribution room from this year can roll over to the next, as long as you open an FHSA account before year-end. While it’s okay not to max out right away, contributing something now lets your money begin growing tax-free this year. At the very least, opening an account this year ensures you save this year’s contribution room for next year!
4. Harvest Tax Losses in Your Non-Registered Accounts
Tax-loss harvesting is one of the smartest financial strategies to consider before year-end. It involves selling investments at a loss to offset earlier gains, which can reduce your taxable income and lower the taxes you owe on capital gains.
Each December, I review my portfolio and use this strategy selectively—only selling investments that no longer align with my investment criteria.
Example:
If you sold shares in one stock earlier this year for a $10,000 gain and another stock is currently down $5,000, selling the underperforming stock could offset half of your gains, reducing your tax burden.
Key Dates:
Timing is everything when it comes to tax-loss harvesting. To offset your capital gains for the current tax year, you must complete the transactions by December 31. Keep in mind the settlement periods (usually two business days for most securities) to ensure your trades are finalized before the year ends.
5. Use Employer Benefits Before They Expire
Many workplace benefits reset at the end of the year, meaning if you don’t use them, you lose them. Take some time to review what’s available to you.
Examples of common benefits to use include health and dental benefits, which cover dental work, physiotherapy, massage therapy, mental health support or even new prescription glasses.
For me, I make it a point to book appointments or make purchases throughout the year to fully utilize my benefits, but I always double-check in November or December to ensure nothing goes unused.
Actionable Tip:
Check your benefits portal and book any appointments or purchases needed before year-end to make the most of your plan.
6. Use Flexible Spending Accounts (FSAs)
If you have an FSA or similar “use-it-or-lose-it” account, be sure to spend those funds before the year is up. These accounts allow you to set aside pre-tax dollars for eligible medical expenses, but any unused funds typically do not roll over into the new year.
Eligible Expenses:
To make the most of your FSA, use it for eligible expenses like over-the-counter medications, vision care, and medical devices. You can also consider using the funds for things like copays, dental treatments, or certain wellness services. If you’re unsure about what’s covered, check with your FSA provider to ensure you don’t miss out on eligible expenses.
7. Make Charitable Donations
Donating to a registered charity not only helps a cause you care about but also provides a tax benefit. Contributions made before December 31 are eligible for a tax credit this year.
Example in Action:
If you donate $1,000, you could receive a federal tax credit of up to 29% or even 33% if your income puts you in the top tax bracket of 33%, plus additional provincial credits. This means your donation could reduce your taxes by hundreds of dollars.
Since my employer matches my charitable donations, I always submit my donation request around October to ensure both my contribution and my employer’s match are processed before December. It’s a win-win: we both contribute to a good cause, and I can claim the tax benefit from my portion.
Consider This:
Donating appreciated securities (like stocks) instead of cash can also help you avoid capital gains taxes, making it a double win.
8. Repay Your Home Buyer’s Plan (HBP) Withdrawal
If you’ve borrowed from your RRSP under the Home Buyer’s Plan, you need to make a repayment each year. Missing this repayment means the amount is added to your taxable income for the year.
Why It’s Important
For example, if you owe $4,000 this year and don’t repay it, your taxable income increases by that amount, which could lead to a significant tax bill, especially if you’re in a higher tax bracket.
How to Handle It:
If you’re short on cash, consider contributing at least the minimum amount to avoid tax consequences.
9. Check RESP Contributions for Your Kids
Registered Education Savings Plans (RESPs) offer a 20% grant from the government on the first $2,500 contributed each year, up to a $500 maximum. This government contribution can significantly boost your child’s education savings, making it an important benefit to take advantage of before the year ends.
Why This Matters Before Year-End
If you miss contributing this year, you’re leaving free government money on the table. You can catch up on prior grant years one year at a time, by making more contributions to the RESP in the following year.
Scenario:
Contributing $2,500 by December 31 could mean receiving an extra $500 for your child’s education savings, which could go a long way in covering future tuition costs. Even if you can’t contribute the full $2,500, any amount you contribute will still earn a government match, so make sure to contribute as much as possible before the year ends.
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10. Prepay Deductible Expenses
Some expenses, such as union dues, professional memberships, and childcare costs, may be tax-deductible. Prepaying these expenses before December 31 can give you a head start on next year’s tax savings by allowing you to claim deductions for the current year.
How to Do It:
For instance, if your union dues are $1,200 annually, paying for 2025 now could give you an extra deduction for the 2024 tax year. The same approach can be applied to other deductible expenses, such as professional memberships or eligible childcare costs, that you know you’ll incur in the coming year. By making these payments before December 31, you can increase your deductions and maximize your tax savings for this year.
Additional Tips:
- Be mindful of the payment deadlines for any prepayments to ensure they are counted for the right tax year.
- Keep receipts and documentation of any prepayments made, as you’ll need these for your tax filing.
- Check with your accountant or tax advisor to ensure the expenses qualify for deductions in the current tax year.
11. Pay Down High-Interest Debt
As the new year begins, reducing high-interest debt like credit cards or payday loans can free up cash for savings and investments, helping you build a stronger financial foundation. By tackling high-interest debt, you can lower the amount of money that’s being eaten up by interest payments, giving you more flexibility to allocate funds toward your financial goals.
Why Act Now?
Interest compounds over time, meaning the longer you carry high-interest debt, the more you’ll end up paying in the long run. Even making small extra payments now can help reduce the total amount you owe and save you money over time.
Action Plan:
Start by focusing on the debt with the smallest balance or the highest interest rate, depending on your strategy. If you choose to target the smallest balance first, you can quickly eliminate one debt, giving you a psychological boost.
Alternatively, tackling the highest interest rate first will save you more money in the long run by reducing the interest you’re paying. Make an extra payment before December 31 to get ahead and reduce the amount you’ll owe in interest going into the new year.
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12. Review Your Budget and Set Financial Goals
The end of the year is a perfect opportunity to reflect on your financial progress and set new goals. Be sure to update your budget to align with these goals, focusing on savings, investments, and debt repayment.
Questions to Ask Yourself:
- Did I stick to my budget this year?
- What financial wins can I celebrate?
- Where do I want to improve next year?
- What are my financial goals for next year?
Practical Step:
Use budgeting apps like YNAB or even a simple journal to review your spending patterns and plan for 2025.
13. Plan Strategic RRSP Withdrawals (If Needed)
If you anticipate being in a higher tax bracket next year, consider withdrawing from your RRSP now while your income is lower. RRSP withdrawals are taxed as income, so timing these withdrawals can have a significant impact on your overall tax bill. By taking out funds while you’re in a lower tax bracket, you may be able to reduce your tax liability, as the withdrawal will be taxed at a lower rate.
Example:
If you’re temporarily earning less this year, withdrawing $5,000 from your RRSP might result in lower taxes compared to withdrawing the same amount in a higher-income year. However, withdrawing too much now could reduce the funds available for future growth, so it’s important to be strategic about both the timing and amount of withdrawals.
14. Double-Check Your Tax Withholding
Have you been paying enough tax throughout the year, or are you at risk of underpaying? It’s important to review your tax withholding to ensure you’re not caught off guard when tax season arrives.
Use the CRA’s tax calculator to check if your current withholding matches your actual tax liability. If it looks like you’re falling short, making an additional payment now can help you avoid penalties and interest charges later.
Why This Matters
If you haven’t been withholding enough tax from your paycheck or other sources of income, you may end up owing a large sum when you file your tax return. The CRA may also apply penalties for underpayment, which can add up quickly.
Checking your tax withholding at the end of the year gives you a chance to correct any discrepancies and keep your finances in good standing.
Action Plan:
If the calculator shows that you’re behind, consider making an additional payment to cover the shortfall before December 31. This can help prevent any unexpected tax bills and interest charges, allowing you to start the new year without the added stress of overdue taxes. If you’re unsure about how much you should pay, consult with a tax professional to ensure you’re on track.
Wrap-Up
The key to ending the year on a strong financial note is to be proactive. Whether it’s maximizing your RRSP contributions, taking advantage of unused TFSA room, or using employer benefits, each of these money moves to make before the year ends can help you save money, reduce taxes, and set yourself up for a financially sound 2025.
What steps will you take to make the most of the final weeks of the year? Let us know in the comments below!