The Introduction
So each year about tax time we ask ourselves a few questions. They plague our minds and fill our thoughts. In this blog, I’m going to state a few of those pesky questions, but I only have time to answer one. Guess which one is correct and I’ll do a backflip.
- How much will I get as a tax refund?
- Why do I even get a tax refund?
- Do I owe taxes?
- Can I file my own taxes and still get the best returns possible?
The last question is possibly the most actionable, can you? The simple answer is, kinda. There are a few reasons to get help while filing your taxes each year. It may or may not be as important as getting a lawyer to represent you in court, and it’s definitely not mandatory. You can waive your rights to an attorney just as you can a Tax Professional. (waive being a strong word here).
The reality is with all the software that’s now available, tons of them being free, it’s not as though we don’t have the resources to file our own taxes and I actually think more people should consider a DIY approach.
The question still stands, as tax software becomes more accessible and DIY options are being promoted by leading Tax Preparation Companies, why is it that approximately 60% to 70% of Canadians still use a Netfilter or an E-filing service? Government Tax Stats.
I made a list of possible reasons and I think they capture the general circumstances and situations that we find ourselves in each year. We all have our own personal situations so making the decision to get help while filing should always be considered on a year-by-year basis using a personal assessment of your own situation.
List of possible reasons we May ( Not) use a Tax Professional
- Time
- Complexity
- Knowledge and Expertise
- Cost
Is it worth your Time?
Let’s start off with possibly the one thing most of us wish we had more of, time. It’s a currency hence why we use the term “Spend” time because when used it usually can’t be retrieved, it’s exchanged for the company of our loved ones; family, and friends, to allow us to binge-watch Netflix, get groceries, walk the dog and the list goes on. In the modern world, we enjoy the privilege of having time to do nothing more than unwind while scrolling on Instagram or watching new infographics videos.
So if you don’t have time to tie your shoelace then carving out time to sit down and do your own taxes doesn’t seem very attractive, does it? This will require you to get up to date with the latest changes in the Tax Laws which change every year, gather all your documents, and the actual time to do the data entry into whatever software you find. (this has to be done with precision and accuracy).
Filing your taxes is far more serious than tying your shoelace of course and finding that time is probably more of a priority, seeing that it determines the amount of actual MONEY you will either be paying or receiving. If you’re someone that believes no one will do it as well as you, then there’s an incentive to find the time.
If you don’t have the time to catch up on the tax changes each year which includes the deductions and credits you may be eligible for or that you might no longer be eligible for then it might be worth it to get help.
How Complex is your Return?
Let’s be honest, how complex is your tax return? Were you professionally employed and were you issued a T4 Slip – Statement of Remuneration? Only one primary source of income? The truth is if you have children and even a spouse and you both only had one primary source of income each, you don’t really need a Tax Professional.
The time required to file in this situation is not significant and the free software on the market makes it almost too easy to input data using a standard step-by-step process. The software does all the calculations and asks all the simple questions. It’s possible a preparer would get the same return if your situation is simple enough because it can’t be optimized any further.
On the other hand, did you receive dividend income, Interest income, and Sold property at a gain or loss? Do you have a small business whether it’s a side gig like Uber or Lyft, skipped a few dishes, or offered your services as a Life Coach, Social Media Manager, or Therapist?
On another note, do you have an incorporated business or just a registered Sole Proprietorship, Partnership, or rent parts of your home?
Based on the Tax Laws in Canada, if you carry on business whether registered or not by providing a product or service with the intention to make profits you are required to declare income.
When your tax situation is no longer one T4 and a few dollars paid out in interest, it might be financially and legally beneficial to talk to somebody that understands the credits, deductions, expenses, and costs that can be deducted in the right way. Not to mention how to report certain income types. While providing advice on how to exploit the benefits for specific accounts and write-offs.
What’s your Knowledge and Expertise?
Who is an expert? Usually, this is a person that knows more than the average person in a specific field. Information surrounding our tax laws and obligations is made public on the CRA website. The Federal Government and the Provincial Government don’t hide the resources about how to file when to file, what to file, and even the details about what can be claimed. See for yourself.
It’s all available to the taxpayers but do you have the time to read the requirements, so you have the experience to understand the information and apply it to your specific situation?
The government carries out audits each year and if certain deductions are claimed in an improper way, that error can easily lead to a reg flag, screaming “I did something illegal.” That audit may or may not be detrimental to your financial health but it can be very stressful and significantly increase your chances of being audited again in the future.
If you do not understand or intend to understand the tax laws that apply to your specific situation it might be best to get help. Most Tax Professionals have completed tax training schools or are accountants with an accounting degree. At the highest level, they may be Chartered Professional Accountants (CPAs) and even Attorneys.
If your situation becomes more complex, it might be necessary to get help, using someone that has training and experience in the specific field.
What will it Cost you?
I believe that cost plays a role in everything we do. These days money no longer grows on trees, it’s only smart to prioritize your expenses. What is your Return on Cost?
Tax Software can be used for free or the companies may charge a minimal fee. Usually, this fee is negligible, major players in the Tax Preparation industry even offer DIY options that are usually not very expensive, so why then should you use a preparer?
What might not be said is that the generic though perfectly fine software that is made available is great for simple returns, more advanced software does exist. This software can help with optimizing your return but only if your recovery requires any optimization.
The more complex your return the more you will pay and the more experienced and knowledgeable the preparer should be. Generally speaking, if you pay more to optimize your return then ensure you need it in the first place and also ensure you get value for your money.
That value transcends just having someone do your return but should include peace of mind, data security, accessibility and availability of the preparer, and proven advice and recommendations that will help you to be better able when improving your tax situation for the next year. The Human touch can be very valuable and sometimes it’s worth it.
The Conclusion
Every Tax Year is different and your situation may change year on year, this means that those same questions we ask ourselves each year are actually not rhetorical but are very important.
Evaluate your situation each year, what has changed? Has anything changed? Did you purchase a home? Did you do any renovations? Do you now have children? Did you start a business? Did you become disabled? and really the list of possible changes is endless. Does that change make your return more complicated and will it require more time?
In the end, you should always be getting value for your money. The service should provide a Return on your Cost (Pun Intended). Whether that cost be Time, Patience, Knowledge or frankly your money, is it worth it?