MoneySense Magazine, April 2004
Relax, it’s just tax
Why does the other guy always get the best tax breaks? Because the other guy is an urban myth.
This article was first published in the April 2004 issue of MoneySense.
I used to get really worked up about my income tax return. Every year, from the moment my T4 income slip arrived in the mail to the moment I dropped the completed package off at the post office, I was consumed with dread. Sorting out all my necessary receipts and filling out all those dratted forms would take the better part of a weekend. “I give half of my income to the government,” I’d complain. “Why do I have to give them my weekend, too?” That was justification in my mind to put off the inevitable until scant days before the April 30 deadline. By then, of course, it was too late to read up on all the supposed loopholes and write-offs I should be cashing in on. Convinced I was paying more than my fair share, I enviously cursed the more organized types (damn them!) who’d filed early and now had nothing to do but rub their hands together in anticipation of their juicy refund cheques.
Unless you’re one of the super-efficient few who had a stamp on your income-tax envelope in February, I suspect you can relate to at least part of my story. So you’ll probably be as happy as I was to learn why the other guy always gets the best tax breaks: it’s because “the other guy” is an urban myth. According to Michael Veitch, a Toronto accountant who does taxes for the crème de la crème of Canada’s music industry, including The Tragically Hip, you aren’t missing anything, simply because there are no spectacular tax-break secrets to let you in on. The five main deductions you can claim against your employment income are charitable donations, child-care expenses, union or professional dues, medical expenses and RRSP contributions. For Veitch’s money, an RRSP contribution is the only one that’ll make a noticeable dent. “If you’re an employee and you’re getting a T4 slip, that’s all you’ve got,” he says. In other words, putting as much as you can into your RRSP each year is your best way to save on taxes. If you’re already doing that, you should be just fine.
It is true that there are strategies you can use to trim your tax bill if you have more than one source of income or if you have a number of non-sheltered investments that have appreciated nicely over the past year. For most of us, though, the key to tax time is to relax. Take a deep breath, stop looking for magical deductions and write-offs that don’t exist, and concentrate on making the task of filing your annual return as quick and stress-free as possible. One way is to delegate the job to a professional tax preparer like H&R Block. But if, like me, you would sooner pay someone to go through your underwear drawer than hire a stranger to do your taxes, your home computer may offer the perfect (and private) solution.
Tax-filing software, such as the topselling QuickTax series, has been around for more than two decades now. It has become increasingly easy to use and very affordable. For instance, it costs just $12.95 per person or $19.95 per family to use the Internet version of Ufile. Meanwhile, Taxwiz and QuickTax Standard packages that you install on your PC allow you to complete tax returns for up to six members of the same family for $24.95 and $39.95 respectively. Although you won’t go wrong with any of these packages, if you’re already keeping track of your day-to-day finances using Quicken software, you may want to choose QuickTax, since it allows you to easily transfer information from one program to the other. Or try QuickTax Platinum ($79.95), which has sophisticated scenario tools that help you plan years into the future. (Beware: computer newbies may find these tools more mind-boggling than helpful.)
A beautiful feature of all these programs is they do all the necessary math in a split second, eliminating the need for you to backtrack and recalculate 16 sections of your return when you change the value of one tiny box. When you’ve finished plugging in all your data — a process that’s done in a fraction of the time that pencilling in everything would take — the software alerts you to fishy bits in your return, reducing your chance of an audit.
For nervous types like me, the latter feature alone makes tax-preparation software worth the money.
MoneySense Magazine, April 2004