With Thanksgiving right around the corner, now is a great time to reflect on some end of year financial “harvesting” tips you can easily implement in your business or personal life.
#1 – TAX LOSS HARVESTING
The concept of tax loss selling or tax loss harvesting occurs when an individual or entity deliberately sells capital property (a security or mutual fund for example) at a loss to help offset other capital gains incurred in the year. As an income tax planning strategy for individuals, tax loss harvesting is commonly done near the end of the calendar year to lock in any losses before the turn of the calendar year after all other gains incurred in the year have been considered. For corporations with a year-end that does not match the calendar year, be aware of the fact that you’re on a different reporting schedule.
There are some things to keep in mind however. When considering selling assets to harvest losses, you need to be mindful of the CRA’s “superficial loss” rules. These rules stipulate that you cannot repurchase a security or investment within 30 days of selling it. So if you’re selling assets with the primary objective of harvesting those losses but still love the investment, you may consider either repurchasing an investment with similar to nearly identical characteristics or asset make-up or simply wait 30 days to repurchase the asset.
#2 – LIQUIDATING INVENTORY & UNPRODUCTIVE ASSETS
Have you recently considered the productivity of all assets used in your business to help you produce ongoing revenue? Why not consider harvesting assets that are no longer productive. Examples of this could be equipment that is seldom in use or inventory that is no longer moving efficiently (why not consider running a sale to clean out some of that inventory?).
Consider looking at unproductive assets in your business as a missed opportunity. You want to see if you can find more efficient applications and uses with your resources to help you generate more revenue in a more efficient manner. This is just smart business.
#3 - COLLECTING ON OUTSTANDING ACCOUNTS RECEIVABLE
One of the easiest opportunities to “harvest” all of your business’ hard work is to ensure proper time and energy is put into collecting on any accounts receivable (A/R). If you’re behind on your company’s A/R collection, again, you need to consider this a missed opportunity. You now have less liquidity in your business to buy inventory, pay employee salaries, make strategic business investments or even pay yourself. Perhaps your company is good at collecting on its A/R but your payment terms are too lenient or customer friendly. Maybe there is an opportunity to shorten the window on your A/R collection to give your business an opportunity to better manage the cash flow.
#4 - HARVESTING YOUR INTELLECTUAL CAPITAL
Are you realizing the full potential of your ideas? Chances are you’re not because so many of us walk around each day with some pretty fantastic ideas but fall short on action. Who knows, maybe those ideas could lead to the next breakthrough in your business or company?
Where we tend to fall short is not creating the time, opportunity or environment to realize the potential of our ideas. Consider dedicating time in your calendar to brainstorm or work towards the implementation of some of your ideas. Perhaps you can join a business mastermind to work collectively with a group of individuals to help you solve your business challenges. It is amazing what we all can accomplish, achieve and create just by “harvesting” and unlocking the potential of our intellectual capital.
Isaac Musial is Partner & Wealth Advisor at Compass Wealth Partners, a Durham Region based financial services company located in Oshawa, ON. The foregoing is for general information purposes only and is not intended to provide specific personalized advice including without limitation, financial, legal, accounting or tax advice.