It’s that time of year again! TAX TIME! If you didn’t get a chance to implement any of my 16 Tax Tips for Year End, don’t fret, my friend, there’s still time to get more money back from your tax return!
NOTE: These suggestions are for the Canadian Tax system. If you are claiming your taxes in the US, then sorry, this post ain’t for you! Australian visitors click here to figure out your tax.
I started filing my own taxes last year. Before that, I hired an accountant to do my taxes (my taxes were really simple) and paid about $125 for his services. He gave me a few good tips which I carried on to use for the next year, when I learned to do it myself. I decided to do my own taxes because:
- I didn’t want to pay someone else $125 when I could do it myself
- I didn’t have my own business so I couldn’t deduct my accountant expenses
- You care about your own money the most (using an accountant is kind of akin to hiring a financial adviser, right?)
- I wanted the challenge
One thing that I would recommend you possibly NOT do is go to H&R Block. They can charge exhorbitant fees if your tax return is complicated and the people doing your tax returns are not accountants. They have taken H&R Block’s tax return course (and likely paid $350+ for it) in hopes of working for H&R Block. I saw the H&R Block ad in the paper for the course and was interested in going to it…I do hear that it is helpful in preparing your own returns though. That said, there are good experienced people who work at H&R Block and people who are inexperienced.
Doing taxes by yourself is actually kind of fun (yes, I know I sound lame… but maybe I really was an accountant in my past life) but I would only say it is fun if you use a tax software program. Calculating everything by hand with a calculator and a pencil and eraser would likely drive anyone batty.
On the other hand, if you have your own business (for example, you have rental or investment property) it can be helpful to hire an accountant because knowing what you can deduct and how can be kind of complicated.
Alright my friends, so here are some ways to Get More Money Back from Your Tax Return:
One key thing to remember is that you really need to KNOW what you can deduct IN ADVANCE, or else you won’t be aware to collect them for your deduction!! (e.g. receipts, transit passes) So you kind of have to embody the accountant mindset anyways, in order to reap the rewards.
- Contribute to your RRSP before March 1: The RRSP deadline is March 1– so hurry up fill yours! You can find how much you’re allowed to contribute on your Notice of Assessment (you know, that form that sent with that cheque?) You’ll be able to receive a tax refund equal to your marginal rate, that you can later then contribute to your TFSA! (Hey, two birds with one stone– not bad, I say!)
It is important to remember though, that if you make about $36,000 or less, then you should contribute to a TFSA instead, because you’re not getting taxed to the nines. When you get taxed to the nines, then contribute to an RRSP because then you can receive a larger tax refund. Having said that, if you have enough dough to contribute to both a TFSA and your RRSP, you can contribute to your RRSP BUT hold off on using it as a tax deduction until future, more income-generating years (use Schedule 7 for this).
- Keep your Transit Passes: You can get a tax credit of 15%. If you’re a student, keep your monthly pass because you can deduct the cost you pay for it on your taxes. If you have a monthly transit pass you can claim those as well (don’t lose them or throw them away! They’re worth something even after the transit pass expires). The transit passes have to provide detailed information (e.g duration of use, transit authority, amount paid) and are good for a Federal Tax Credit (GOOOO CANADA GO!)
- Tution Credit: If you’re a recent grad (congradulations!) you can claim your tuition credits.
- Claim your Student Loan Interest: Yes, having student loans looming does have it’s minor minor silver lining- that is, you can claim the interest that you are charged on your student loan.
- Claim Medical Expenses: Keep your receipts for any prescriptions and medical or dental expenses that weren’t covered by your Health Benefits Plan. If you plan to get laser eye surgery (which can be upwards of $1000) for example, you should make sure you keep other expenses you incurred within any 12 month period (it doesn’t have to match the tax year– e.g. it can be from April 2008 to April 2009 instead of January 2009 to December 2009) as long as you hit the magic number: 3% of your net income OR about $2000 (for tax year 2009). If you live common law or are married, you can add up your expenses for both of you and claim it against the person with the smaller income.
- Utilize Dividend Tax Credits: THIS is why Canadian corporations that pay dividends are best kept in a non-registered account. The taxes on dividends are much lower and almost favourable if you are in the lower income tax bracket.
- Claim your cell phone bill: The tip my accountant gave me was that you can deduct a reasonable amount of your phone bill (e.g. 50)% if your employer regularly uses it to call you to obtain work (this works for example, if you are a ‘casual’ employee and they usually call you to see if you can come in to work). The percentage used should be traced back to your airtime.
- Donate: Oftentimes charitable organizations that are approaching you personally (for example, I had a colleague at work who was asking for donations for a worthy cause in the local community she was representing) may be able to change the date on the tax receipt to the 2009 year. She offered to write to date of the donation for the 2009 tax year.
- Working from Home: If you work from home more than 50% of the time, there are a large number of deductions that you can account for. You can deduct your internet expenses and stationary bought provided that you use these to obtain income. If you rent, you can deduct the portion of rent and any other maintenance costs you would pay for your office space. Per the CRA “Work space in the home expenses” site, you can also deduct:
You can deduct the part of your costs that relates to your work space, such as the cost of electricity, heating, maintenance, property taxes, and home insurance. However, you cannot deduct mortgage interest or capital cost allowance.
- Consider not giving an interest free loan to the government: Yeah, you heard me…that lovely tax refund you get in the summer? It’s basically YOUR money that the government was keeping warm for you. If you fill out a T1213 form and hand it over to your employer, they can deduct less of your income on your paycheque. You’ll get more money on your paycheque (BONUS) but if you’re like me, you might have a psychological crutch that makes you WANT to see that big tax refund cheque from the government… I’m not sure what it is, the cheque seems so symbolic. HINT: Don’t do what I do! Get your T1213 forms. I’ll try and tell myself to do that for next year too.
Another helpful tip my accountant gave me was to submit it through the mail instead of online. When you submit it online through NETFILE, you keep all your receipts and documents (e.g. T4’s ) and if they ask you to submit it in the future, you do. The accountant I spoke to said that doing it this way may seem more convenient, but he said that more often than not, your tax return gets audited more often than if you were to send it in through snail mail.
There’s a variety of tax return software available. Some are free. You could even use the tax return software to do all your calculations, and then input the numbers into your paper tax return (the tax return booklet).
Here are a few that are popular, FREE, and NETFILE certified if you want to send it through NETFILE:
- Studio Tax Not the fanciest of websites, but it’s great for basic tax returns. It’s completely free (if you file less than 20 tax returns)! Free download of tax software and you don’t need a license key or registration key to get it. They even have student versions. You don’t have to pay $40 for Ufile or Quicktax. Studio Tax is highly recommended.
- QuickTax recently launched free tax software. Good for 1 return. They have the QuickTax Free online edition, free student edition, and free Freedom Program. These are good for basic returns (if you have any investment slips e.g. T5’s and T3’s then this isn’t for you!). The good thing is, that if you start the free QuickTax free online edition and realize that it’s not meeting your needs, you can upgrade to the QuickTax standard edition without losing any of your precious work. It’s very user friendly and easy on the eyes.
- CANTAX This was the program I used last year. It’s super comprehensive and it’s designed for tax professionals. It’s NOT free, but it’s good. It was free for me because my dad the accountant let me use it. =)
- UFile You can file for free with UFile if you earn less than $20,000 per year OR if you are a student (Oooh the perks of being a student). If you do not fall into that category, you can try it for free and only pay when you have to print or submit it online through NETFILE. It’s $15.95 for this.
- H&R Block has a free online filing product if your tax returns is really simple. Again for their other products, you can start for free and pay if you need to print or file.
- Turbo Tax – You can start the return for free but you need to pay a bit to actually file it.
Well, that’s all I can think of for now folks. Good luck doing those tax returns! If you liked this post and want to acknowledge the blood-sweat that I poured into writing this, please subscribe and/or add me on Twitter. Thanks!
Have you ever filed your taxes by yourself? What do you think of it? Any suggestions or tips with any of the free tax preparation software mentioned above? Have you ever filed with H&R Block?