DIY taxes: What you need to know

Are you an ideal candidate for DIY taxes or are you better off in the hands of a professional?

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taxes_confusion_322With the April 30 personal income tax deadline fast approaching, now’s the time to decide whether you’re an ideal candidate for the do-it-yourself approach using tax filing software or if you are better off in the hands of a professional.

Going it alone can save you money upfront but it’s not always worth the hassle, especially if you are likely to miss out on important tax credits, said Brian Quinlan, chartered accountant at Campbell Lawless in Toronto and author of Taxes for Canadians for Dummies.

“For very straightforward returns, there is no reason why a person shouldn’t do their own return,” Quinlan said.

Landlords, self-employed persons, employees with numerous work-related expenses and high-level investors on the other hand should probably consider hiring an expert.

“It really comes down to the personality, if they want to spend the time or they are not comfortable working with it.”

Hiring a professional? Buyer beware: not all tax pros are created equal. A walk-in tax preparer can charge upwards of $70 for a basic filing and while they do a decent job done in a short amount of time, these pop-up shops are not ultimately responsible for making sure all relevant information is submitted to the Canada Revenue Agency (CRA).

“They can only prepare what you give them,” Quinlan said.

A tax preparer may not ask the prying questions whereas an accountant will probe you, your bank and investment adviser for information to take advantage of all applicable tax deductions and credits.

And if there’s a discrepancy between what was submitted on your behalf and what the government has on file, the CRA will want to deal with you directly, not your tax preparer.

Going it alone? The good news is tax software kits have never been more user friendly. Don’t take my word for it. Canadians submitted some 16.5 million electronic returns using software products to the CRA in the 2010 filing year.

NETFILE is the federal government’s online tax-filing service and information is sent directly to the CRA over the Internet. But for NETFILE to work, you must first use compatible software.

The government provides a list of free certified software packages and web-based programs for taxpayers. A full list of all certified DIY options is also available. There’s even an option to file directly from your iPhone. TurboTax SnapTax is available for download at Apple’s iTunes. The app allows you to snap a photo of your T4 slip with iPhone’s built-in camera before asking you a few basic questions. Within minutes SnapTax is ready to file your information directly to NETFILE, for a fee of $9.99. (Read more about SnapTax here.)

Canadian Capitalist blogger Ram Balakrishnan’s top software picks are TurboTax (starting at $19.99), UFile (starting at $15.95) and H&R Block at Home (starting at $15.95). Balakrishnan also tried the free StudioTax software and liked it despite it being “a bit clunky.”

Whatever kit you use, Quinlan suggests you start by asking yourself: “What’s changed in my life in the past year?”

A new marriage, divorce, baby or death in the family all have tax implications and more often than not they involve some sort of tax break.

The CRA has a full list of tax breaks. In the meantime, here are few tips:

  • Report student loans because they are tax deductible. Still in school? Students can claim tuition and textbooks.
  • Got young kids? Have the lower income spouse claim the childcare expenses for maximum benefits. And don’t forget to show claim extra-curricular activities. Families may be able to qualify for a non-refundable tax credit of up to $75 per child for eligible expenses like an after-school art workshop. A similar tax credit is also available for physical activities.
  • Remember to report your pension and RRSP contributions to lower your overall taxable income for year.
  • First-time homebuyers can claim $5,000 on the purchase of a new home and save up to $750 in tax.
  • And new this year is the ability to transfer medical expenses from dependents to caregivers as well as extended medical credits for children over 18.

If you are feeling overwhelmed, rest assured most home software kits will walk you through these and other tax credits step-by-step.

“But if people aren’t that focused then they should really hire somebody to do it. And really hurry, there’s only a week and a half to go,” Quinlan said.

Filing after the April 30 deadline could result in a delayed tax return, if you are entitled to one. If you owe money to the federal coffers, you’ll be dinged a minimum of 5% of the balance owing, plus another 1% penalty on unpaid tax for every month that it’s late, up to a maximum of 12 months.

2 comments on “DIY taxes: What you need to know

  1. Technology really does make life a lot easier today. I remember doing my taxes in the early years fresh out of school on the paper forms.

    Things are a lot more complicated now and the software and online options make it easier if you only have T4 income. However, as suggested, the software can only take you so far and there are times when it pays to work with a tax specialist with expertise in your line of business.

    The government is also reviewing more tax payers and looking at more criteria to flag someone for an audit and tax software may not cover all the basis to ensure you don't get flagged for an audit.

    So, when it comes time to file your taxes, if you have more than a T4 slip, think twice about selecting a free option or low-cost tax software. You may end up missing some deductions or credits, or worse you may get stuck with high penalties and fees if there's an error.

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  2. :->)

    Reply

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