The Accountant Experiment
A couple of years ago, I decided to try something different. I had some income from self-employment, which entailed some basic expenses I wanted to write off. I was real busy that year, so upon advice of a family member, I decided to let Katrina Morin and Associates take care of my income tax. I paid Katrina a premium of $200 up front, hoping it was money well spent and expecting her to discover some uncommon tax loopholes to improve my return. I ended up worse off than had I done the taxes myself. I got a return, my spouse had to pay, but the amount my spouse had to pay was greater than my return, which wasn't any different from any other year when I did the return myself with help from cheap tax software. What made it worse was that Katrina Morin and associates made a mistake on my filing, which cost me $26 in interest charges on the additional amount owed by the time the government got around to discovering her mistake - an interest charge I wouldn't have had to pay, since I always pay my taxes in full before the deadline. While her associate admitted that the mistake was entirely theirs, I've yet to be reimbursed the $26 in interest charges (note to self, write a letter to the local better business bureau). The following year, I bought the UFile software for $19.99 and did my and my spouse's income tax, error free. The Sunday afternoon I spent was definitely worth over $200 in savings.
What about companies that do income tax?
Every year, the kiosks for income tax processing spring up everywhere. MoneyMart has EasyTax, H&R Block ramps up their visibility, it seemed like a good time-saving idea until I recognized these for the mills they are. I imagine a team of underpaid people sitting in front of computers that are running a program essentially the same as the UFile or TurboTax software I could buy for $20 at a local store. Now I imagine that these people are not just doing my taxes that day, but as many tax returns as they possibly can. Odds are good that they'll process my return without any errors, but it's very likely it's going to be a rush job with minimal to no effort put into finding ways to maximize my return, unless the software is specifically designed to look for it. I don't even know who's going to see my financial information. Let's assume that there will be no difference between my return filed by EasyTax and one I've done myself with UFile. With EasyTax, if I get a return, I will pay them 15% on a return of $100-$300, and 5% on amounts in excess of $300. Doing the math, I will have paid them $58 on a $500 refund, and $83 on a $1,000 refund. If I'll get back less than $100 or owe money, they get to decide whether I'll have to pay them $29.99, $49.99, or $79.99, depending on how complex they believe the return is. Add in my spouse, that counts as another tax return. Of course, they won't do a tax return on someone who has income from self-employment; but UFile doesn't care. It'll handle self-employment income and expenses just fine, and the only people who see my financial information are me, my spouse, and the government clerk who processes the return (assuming it's not entirely automated).
To their credit, H&R Block offers their own DIY income tax software, called H&R Block At Home, which is competitively priced as of the time of this writing. I have no reason to believe it's any worse or better than the competition. Also, these services often provide the money up front, usually on the same day, for a refund, less their fees. Personally, I'd wait the few weeks it would take at most to see the refund, unless I absolutely needed the refund to pay off a balance where I had to pay exorbitant daily interest charges.
Back to free
It's unfortunately increasingly often I find myself needing to rediscover the truths I realized as a young adult, and free income tax solutions is another example of this. While researching which software package offered the greatest value for the 2012 income tax year, I happened across StudioTax. It's fortunate that I've found significant value in free software in the past; otherwise, I would have overlooked this little gem. I decided to give it the benefit of the doubt.
In less than an hour, I had completed my and my spouse's income tax return, at no cost to me except less than an hour of my time (including the time to download and install the software). We both have to pay, which means a minimum $60 if we had someone else do it for us. I'd say that was time well spent.
In less than an hour, I had completed my and my spouse's income tax return, at no cost to me except less than an hour of my time (including the time to download and install the software). We both have to pay, which means a minimum $60 if we had someone else do it for us. I'd say that was time well spent.
Why it's better to owe than to get a return
I often see people excited about getting an income tax return from the government. This seems like a strange thing to get excited about, when considering what an income tax return represents. In essence, an income tax return means I've paid the government too much in income tax over the past year, so now I get the amount I paid in excess over the year back in a lump sum payment, without interest. In other words, an income tax return is the government paying back an interest-free loan. On the other hand, if I owe money at income tax time, I didn't pay enough income tax to the government throughout the year. This means I got the interest-free loan from the government that I get to pay back in a lump sum.
How to do it
For a simple return, it couldn't be simpler. We each get a T4 slip from our respective employers. When I run the software, I'm asked some questions; it's essentially "Fill-in-the-blanks." I provide my name, address, social insurance number, as well as this information for my spouse. It steps me though the process, asking me the same questions a professional accountant would ask about things like dependents. After that, I fill in the numbers in the boxes for the respective T4 slips. Each box is numbered; it's a simple matter of making sure the amounts in the numbered boxes go in the same numbered boxes in the program. After that, it's done. I can Netfile or print it off and mail in my return. I bet a trained monkey could do it.
Conclusion
Doing my own taxes is a worthwhile endeavor that's become an annual tradition I recommend to anyone. It takes little to no time, and it helps me to better understand my money - how much of it I earn, how much I'm paying in taxes, and helps me to better manage my money. While I'm not qualified to provide any financial advice, I believe that at least attempting to do one's own income tax is an educational experience that's worth the effort, and software like StudioTax makes it simple.
