Income Tax season: Is it really that scary?
Is income tax season as scary as they want us to believe?
Spoiler alert: Nope!
Well it’s the end of February and I’m starting to hear all of the usual ads on the radio when I’m driving anywhere now. Even on TV you’ll see a few of them. They’re all reminding you of the same thing and trying to tell you that you need a professional’s help. They’re all about tax season! With Canada’s personal income tax deadline coming up on April 30th, 2016 I’m going to tell you why you don’t have much to worry about and why you should file your taxes yourself.
Judging by all the commercials I hear on the radio you’d think filing taxes was the hardest thing in the world. These commercials like to emphasize that if you don’t get it right the government is going to come after you for more money. Sometimes they’ll use terms you might not be completely familiar with like deductions, tax credits, or audits.
I think a lot of people are under the impression a lot of these tax preparation places employ accountants and highly trained professionals that know the income tax structure inside and out. Unfortunately this is about the furthest thing from the truth. Most companies like this staff up around tax time, these are seasonal employees dealing with the rush. How else are they going to staff so many pop up shops in Walmarts and malls around the country? The big ones actually hold internal tax preparation training courses over a day or two to teach people to use their tax software and file the most basic cases.
Here’s a step by step guide on how to file your taxes:
- Download any tax software of your choosing. There is free software online that you can download in under a minute. If you’re a little skeptical that they’ll steal your information or something like that I understand completely. To help ease this here is a list of free software that the Canadian Revenue Agency puts out for certified tax software. I cannot really recommend one over the over as I haven’t tried many. I have tried Studiotax and it works great and they have not paid me anything to say that.
- Start a profile/account for your taxes – The software is going to need your personal information to be able to file your taxes just like a brick and mortar income tax preparation company would.
- File the step by step guide in the software – I cannot speak to all of the software available but I know filing your taxes is as easy as matching a number in a box on your T4 to a box in the software. Literally the software will say “Enter the number in box ##” and it will do all of the calculations for you. I have a small example in a previous post about learning personal finance in schools.
- That’s it! You may have to repeat the match the numbered box step a few times depending on how much paperwork you get for your taxes. T4s, T5s, RRSP contributions, and more.
Having used these tax preparation businesses in university and my first few years of being gainfully employed I can tell you that on every occasion I had a question about my taxes they had to go get a supervisor or “senior” tax preparation specialist and even then I didn’t always get the right answer.
So what about the scary terms they use in income tax advertisements?
Here are a few things that might be used on income tax advertisements to try to scare you into using a preparation company.
- Dealing with the government – I’ve been audited several times(each time was when I used an income tax preparation company) and the extent of hassling from the government was a letter several months later asking for slightly more information about a deduction I claimed. The first time was the most difficult but not at all difficult because they asked for proof that my employer did not compensate me for moving across the country for work. That’s something the income tax prep company cannot help you with. I just had to email HR at work and get a letter from them stating they didn’t compensate me.There are tons of other ways the government may audit your income tax but none of them are difficult to provide more information.
- Tax credits or deductions – A lot of commercials act like the income tax prep companies will comb through your life and make sure you get every penny possible back. When I used them the only times any deductions or credits were made were when I asked about them. The larger companies do not sit you down and ask a series of questions to see what you may or may not qualify for.To make sure you’re getting everything deducted and credited that you deserve, please check out the CRA’s website. There’s a section on the lower left “Information For…” that may be very helpful if you fall under any of those categories. There is also the “Benefits” section on the upper right that has plenty of information you should educate yourself on as well.
Now if you’ve read all of this and you’re still uncertain you can do your taxes yourself do what I did my first time. Download the software, fill everything out and see if you get a refund or owe. Then don’t file it, take everything to an income tax prep company for the last time and have them do it. Now that you see your total matched theirs you can stop wasting $20-100 (or even more!) each year on filing your taxes. Next year spend that money on a nice bottle of your favourite adult beverage to enjoy after you’ve completed your income tax yourself.