It's that time of year again, when we figure out whether we've given our government too much of our money or not enough over the past year. On a personal level, I find it ridiculous that income tax has become almost mystical to many people, what with all the rules, regulations, and loopholes, but I'm here to tell you, it's not that bad. At the most basic level, preparing an income tax return is little more than a data entry job that, for the average person, can be done in under an hour.
Many people want to take their taxes to an "Expert," but all these experts are really just data entry clerks, who punch your data into software that you can get yourself, and for free. All the work has been done by your employer or employers and financial institutions with the forms they've sent you.
Start by looking at your T4. There are boxes with numbers. Some of those boxes are empty. That's because your company is probably using a generic T4 form provided by the Canadian Revenue Agency, likely generated by their accounting software, and those don't apply to you. For example, box 44 is for union dues, but if you don't belong to a union, or if your union dues aren't automatically deducted from your paycheque, there won't be anything there. If your company hasn't deducted charitable donations from your pay, box 46 will also be empty.
Now, try a program to file your taxes. The Wal-Marts and Staples are pushing DIY tax software this time of year, and for a premium price for what most people need it to do. I mean, we are talking about what amounts to a simplified spreadsheet that accepts data, does the calculations, tells you where you may have entered something wrong, and create a file that you can send off to Revenue Canada. I prefer to go the free route with StudioTax, which has been around for the past 12 years. Some people have asked me, how can they make software for free, when others are charging $30 and up? I answer that question with the question, why would you spend $30 and up for software when you could probably do it yourself with pencil and paper very easily with the blue and pink forms provided by the government? In any case, the choice is yours; whatever route you go, it's all fundamentally the same.
The software will start with "Interview" questions, where you tell it who you are, where you live, whether or not you're a Canadian citizen, whether or not you've been married, whether or not you've had kids, how long you've been at your address...and this is why I prefer an offline program like StudioTax as opposed to an on-line tax program solution; this is personal information that could be used for identity theft, so I stick to software that can run on my computer without an internet connection. I do use the internet connection to ensure the software is updated and to enjoy the convenience of Netfile, but I know my personal information stays on my computer.
An interesting fact is that, if you used StudioTax last year, it can retrieve all of your personal information from last year's tax return. If nothing had changed, you can skip the interview questions and go straight to entering your data, which is a huge time saver. Most programs are similar in this respect, if you stick with the same software year after year.
Now you get to enter the data. You'll see a screen with numbered boxes, even more boxes than you had on your T4. That's because this software covers absolutely everything. Note on your T4 an area towards the bottom that says, "Other information," with a "Box" and "Amount." If you turn over your T4, you'll see all of those box numbers listed on the screen in your program. That's because the T4 is generic, and while the generic form tries to cover 90% of what most people need, they can't possibly fit every box on that piece of paper and still have it readable. If you have something in "Other," you should check to see if the program has a place to enter the amount. You might have something in "Other" that has a box number that isn't listed in your program. If that's the case, then it's likely something that doesn't need to be reported on your tax return.
You've entered your data, now you think you're finished, but wait! This software, like the T4, is generic and tries to meet the needs of the majority of the population. What if, for example, you paid union dues but they were not deducted from your paycheque? You'll get a statement from your union for auditing purposes, but the program may not ask you about it. This is why, at the end, you'll see all the forms available in tabs. For example, when you click on the tab that says, "T1 General," you can go through all four pages of the T1 portion of your return. These are digital representations of the paper version you could do without the use of software. Scanning through them line by line, you'll discover on page 3, line 212 which reads, "Annual union, professional, or like dues (box 44 on all T4 slips and receipts)." You can click on the white portion, and enter this here. If you've paid both union and professional dues (for example, Ontario College of Trades), add them up then enter them here, as this represents the total sum.
There is a bit of a learning curve, but the good news is, once you've done it, you'll know what to look for next year and it becomes easier. The reason I recommend everyone do their own income tax is because you can become an expert for your own income tax. The first time around you might have to search for help and watch some how-to's, but the more you do it, the better you'll get at it. I've been doing my own income tax for years now, and even though I'm not a professional accountant, I'm certain that I'm better at preparing my income tax return than anyone who does it professionally, and probably as good as a high priced professional accountant. Of course, that's just for my income tax. You can be an expert for your income tax, and not only will you reap the rewards in savings, you are also rewarded with a better understanding of your finances and our screwed up income tax system.
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