Income Tax Is Like A Four Letter Word

Income Tax Return

Image Courtesty of Grant Cochrane /Freedigitalphotos.net

Income Tax for some people is like a four letter word, they just don’t want to hear it, and dread the April 30th, 2013 deadline we have here in Canada to file a personal income tax return.

But it does not need to be like that.

I have prepared and  been filing personal and small business tax returns for over 15 years. What started for me as a seasonal job, with H&R Block to supplement my regular income, has turned into a small business.  I find it incredibly rewarding when I help people take advantage of all tax credits that are available to their families. From arts and sports credits for kids, to home improvement credits for seniors, there are many credits people don’t think of when filing their taxes.

Tax Credits

Tip: Did you know that if your Grandmother needs a shower bar in her bathroom, that she can get a tax credit for having it installed? If you need to have your home wheel chair accessible, there is a credit for that too.

Most people know of the “popular” tax credits, medical, rent, property taxes, and childcare. What they may not realize is that the childcare credit also covers things like paying for a day camp for a PA day, or summer camp in the summer or simply paying the neighbourhood childcare provider who watches your kids for March Break.  The child care credit does not go away because your children are in school.

Charitable donations are a wonderful way to bring down your payable tax bill; registered Ontario Charities give receipts for cash donations, and a fair market value receipt for donations of goods.

For instance, that bag of clothes and old Tupperware you drop off at Goodwill, make sure you grab a receipt.  Are you pledging $10.00 for your nephew to participate in jump rope for heart, keep the receipt?

How To File Income Tax

Most average Canadian families do not need a CPA (Chartered Public Accountant) to prepare their taxes, nor would they want to pay those types of fees.  There are many options for filing your taxes, you can do it yourself using one of the many Income Tax preparing software programs available whether web-based or store-bought. Examples are Turbo Tax Canada, Studio Tax, Genutax, Ufile, Netfile, H & R Block Canada etc. Alternatively you could go to one of the “big box” preparing offices, or find someone like me, with years of experience that will prepare and file your income tax return for a fraction of the cost.

Please don’t ever use “Cash Back” tax services if you don’t need to. In this day and age, if you have an income tax refund coming, you will receive it in about 10 days, after E-File with Direct Deposit. Cash Back services keep a large portion of your return. The amounts that are charged are regulated by the government and are 15% of the first $100.00 and 5% of every $100.00 after that. That can calculate to $90.00 plus HST on every $1000.00 of your return. (On a basic return)

Some Income Tax Deductions Tips to maximize your tax refund and lower your payable:

  • Claim medical expenses- People miss claiming common expenses like Blue Cross, and fees paid to medical practitioners like speech-language pathologists, occupational therapists and acupuncturists.
  • Maximize babysitting deductions- The maximum dollar amounts claimable have not changed this year, still $4,000, $7,000 or $10,000, which depend on the child’s age and health. Usually it’s the lower earner who should claim these expenses.
  • Minimize tax on severance- If you’ve lost your job, your severance package can help but it can also put you into a high tax bracket because it’s usually paid in a lump sum. One way to reduce your taxes is to maximize your RRSP contribution room.
  • Claim the new tax credits for children’s activities- Many parents are still not aware of this Children’s Art tax credit. Parents can claim up to $500 of eligible expenses per child under the age of 16 at the beginning of the year in which the expenses are paid or under 18 at the beginning of the year in which the expenses are paid and if they qualify for disability tax credits. Any eligible expenses in 2011 and subsequent years would qualify for this credit. There are new amounts to be claimed on the tax return for enrolling your children in the arts or sports activities. Because the Children’s Arts Amount is new, you’ll need to remind yourself to dig out the receipts.

What you can’t claim (but I am frequently asked if you can)

  • Interest on your mortgage (unless you have income property)
  • Medical expenses for pets
  • Home Improvements (with some exceptions, the “new healthy home credit, is one)
  • Funeral costs, wedding costs and legal fees paid for separation or divorce agreements
  • Public Transportation costs if paid daily or per use (Monthly Pass purchases can be claimed as a credit in Ontario)
Average Cost To File Your Income Tax Return

However you choose to file your Canadian Tax Return, be sure to keep all receipts and supporting documentation of everything you claim. You can expect to pay anywhere from $30.00-$200.00 to prepare and file a basic return in Canada. You may pay around $200.00 on the high end for a CPA, $80.00 for a “big box” tax preparing office, and $30.00 for an experienced private tax consultant.

I also can’t stress enough the importance of using your maximum allowed RRSP contributions each year. In Canada we have until March 1 st 2013 to make contributions that will benefit our 2012 Income Tax Return. Budget accordingly and try to contribute as much as you can each year. Your maximum allowed limit can be found on your 2012 Income Tax Assessment.

For more information on your tax return: Canada Revenue Agency.

About The Author: Kim Rosa, a mom and grandmother,semi retired from a long career in the restaurant industry.  A red seal chef, Kim spends her time these days, as a part-time chef/consultant at a fine dining Bistro in South Western Ontario, as a small business operator, doing books for a few local restaurants, and preparing taxes during tax season. An avid couponer,and advocate of frugal living. Kim shares her love of couponing and deals on her Facebook page:  Coupon Ontario

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Mr. CBB
I’m from the UK and now a recent permanent resident in Canada. I bought my first house at the age of 21 after University then my second at the age of 24. I’ve always been fascinated with personal finance, savings, learning to make money and watch it grow while combating debts along the way. Canadian Budget Binder is a place where I get to share my experiences with personal finance and learn about yours along the way. I hope you stick around and check me out on Twitter, Facebook and Pinterest where I am active on all social media sites. Cheers, Mr.CBB
Mr. CBB
Mr. CBB

Comments

  1. This is why I use TurboTax or any other software. It is aware of all of the crazy credits and can see if you are eligible. Simple and pretty easy.

  2. I used to work for a company that would prepare our taxes at no cost, but this year we will be doing them ourselves. I will have to revisit TurboTax since I am sure that they have gotten a lot better over the years.

  3. As a single income family with 2 kids in post-secondary education, I actually look forward to tax season to get back some of my hard earned money. This year is no different. I will be filing my taxes as soon as I have all of my receipts.

  4. I’m on the tail end of getting my U.S. taxes done. I’ve used TurboTax for a long time and it’s always worked out well for me. My taxes this year are fairly close but I think I’ll end up breaking even, which is fine with me!

  5. AverageJoe says:

    Those “cash back” services can be SUCH a killer. Great post, Mr. CBB.

    • Funny though the people that do use those services really must need the money yesterday if they can’t wait 10 days to get it. Thing is if someone is not used to getting a lump sum of money to do whatever they please it’s almost like a high for them. They want it, NOW.. they are dreaming of all the ways they can use it. Sometimes waiting it out and planning what is best for the money is better than the high in the end especially if it’s not used to the maximum potential.

  6. I hope to avoid getting much a refund this year. That means I gave the government a healthy loan!

    Regarding maxing out your RRSP, that doesn’t make sense for some people. Personal finance is personal, although I do think for most people, some RRSP contributions are a great thing.

    Cheers,
    Mark

  7. Christine Weadick says:

    We use an accountant for our taxes and have for a good number of years. He is a friend as well and our kids went to school together (small town). His wife and I were volunteering at the school together and she was telling me about all the crap her husband had to go through to be cleared to e-file as an accountant.This was when the government first allowed e-filing so you know it’s been a long time. He has helped us get as much as possible back over the years and his advice for us has been on the money every time. We trust him all the way. Our daughter and both sons use him as well. Our daughter’s favourite trick is to stuff all of her receipts in a folder and just hand the whole works over to him to sort and use as much as he can. He just laughs when she hands over this bulging folder of papers…..He has saved us so much over the years!!!!!!!

  8. We’ve been doing our own taxes for years, switching between various software. But since my wife runs her own business, it was getting pretty time consuming. So we’ve since handed it over to an accountant that has saved us a bunch of time, that we can now use to earn more. And he wasn’t as expensive as we expected him to be.

    I agree with @myownadvisor re: maxing RRSP contributions, but I still like the surprise of a refund. :)

    • I’d like to try Turbo Tax we’ll see. As for RRSP’s as long as I don’t pay I’m happy. I do need to start working on my retirement portfolio but unlike Mark who knows what he’s doing when it comes to investing on his own , I don’t so I have to rely on the Financial Advisor. I hope to change that one day… Marks a great source of info though.

  9. I don’t know people hate taxes so much. Maybe they can’t see their money in action, but schools, roads and other public services keep the world moving.
    I’ve sent my U.S. federal already but got rejected because of some clerical errors with my SSN and birthday. So I’ve always had to mail my returns until I get this settled.

  10. I am usually very anxious about taxes from the end of January until I know the final numbers. With my business I never quite know until they are all finished and then we go back and contribute to our HSA or other accounts that you can still contribute to until tax day. I’m hoping to know the final numbers in a couple of weeks, and then I can stop worrying.

  11. I have been using Turbo Tax for my taxes the last few years. I used to do it by hand, but I’d make mistakes once in a while. The cost is minimal and the software makes it super easy!

  12. Canadian Performer's Money says:

    “I also can’t stress enough the importance of using your maximum allowed RRSP contributions each year.”

    I feel this is too broad a statement to make considering there are many cases where maximizing your RRSP contribution isn’t the best use of the small amount of funds most Canadians have left after paying all their expenses. This mantra of always maxing out your RRSP contribution is generally pushed by banks which profit from the investments people hold in their RRSP.

    Contributing to a TFSA or paying down high interest credit card debt is a much better choice for a lot of people. Do a google search and you will find many articles on when it’s best not to invest in an RRSP.

  13. Test posting as requested Mr CBB.

  14. I have a hard time understanding why doing income tax is considered to be such a pain in the butt. If one keeps their papers sorted before hand (IE doesnt have to search for everything after 12 months of randomly placing receipts all over) all it is for alot of people is a few receipts some t4s and some donations. I understand for businesses how much work it is. Personally I’ve done my own taxes myself for about 6 years now. Most years this includes a t4, one t4a some donations, student loans entered, this year moving expenses and I’m done. Netfile it and the money comes 2 weeks later.

    I also have a hard time understanding why some people are willing to pay companies a hefty chuck of their return to get it the same day.

    #CBB

    • The people that want the money the same day most likely needed the money yesterday. In our experience it’s people with none to little money and it’s hard to wait for something you can conveniently pay someone to give you.

  15. I usually attempt to do my own taxes and end up so stressed that I give up and usually have someone else do them. Great post. #CBB

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