Filing your income taxes yourself can be intimidating - but it doesn’t have to be. I started filing my own income tax when I was in university. By using income tax software I was able to learn about tax credits and deductions, marginal tax rate (the tax rate on your next dollar of income) and file my taxes, all in less than an hour. It was an empowering experience and I continue to file my own taxes to this day.
Despite the ease of filing your own taxes online, Canadians still seem to suffer from tax filing phobia. According to a recent online survey by Edelman on behalf of Intuit, 25% of Canadians have never filed their own taxes - but if you have a relatively straightforward tax return, there’s never been a better time to start.
The number one reason Canadians have never prepared their own taxes is because they’re afraid they’ll make mistakes or miss deductions; 80% of respondents listed that as their top tax filing phobia. Meanwhile, 30% thought it would be too complicated to file their own taxes. With so many great income tax programs available, including free software like StudioTax, there’s never been a better time to start filing your own taxes.
Although the majority of Canadians have a relatively straightforward tax situation, the survey found 35% of Canadians would rather hand their tax slips over to an accountant. If you have easy taxes – meaning you receive a T4 slip, you have a T5 slip for bank interest and you have some capital gains from investment income – filing your taxes online should be a breeze. Not only will you learn about our tax system, you’ll save money – Canadians who file their own taxes spend 60% less than those who pay an accountant. By saving money you’ll get to keep more of your tax refund (or owe the taxman less).
You don’t need to know the Income Tax Act cover to cover to file taxes online. Most software comes with an income tax wizard that will prompt you with a series of easy-to-answer questions. You don’t have to worry about forgetting to claim medical expenses or your RRSP contributions, as the wizard will remind you. If you’re afraid of making a mistake, like a lot of Canadians are, most software will validate your return before you file it.
If there’s one area of concern, it’s data entry. Make sure you enter everything from the numbered boxes on your tax slips in the correct boxes in your income tax software. For example, entering $2,000 instead of $22,000 in box 22 (income tax deducted) of your T4 slip in your tax software could have dire consequences and result in a hefty tax balance owing (when you might in fact be entitled to a refund). Unfortunately, tax software isn’t sophisticated enough to catch that – yet!
While filing your own taxes can save you money, it can be a case of penny wise, pound foolish if you overlook credits and deductions and make mistakes. If you’re self-employed, a landlord or a small business owner, your tax return will be a lot more complicated. While tax software likely has all the forms you need, it probably won’t tell you the deductions to make to maximize your tax refunds. Unless you’re a chartered accountant, it’s probably best to leave it to the tax professionals like H&R Block. You can rest easy at night knowing your taxes are filed by the book and you might end up with a bigger refund.