Today’s guest post is by the wickedly down-to-earth and funny accountant-blogger Krupo. His blog is A Counting School, making the world safer for those lacking calculators. Here’s his best tips on making tax prep as painless as possible – and making sure you don’t waste money in the process!
Most accountants charge you by the hour. If you can do something to make their job easier, it can save you hundreds of dollars. Even if you’re going to a cheap neighbourhood “Income Tax Quick Stop” place, there are things you can do to avoid mistakes in the preparation of your return.
In that spirit, here’s some tips, starting off with the stuff that’s most common, working our way towards more complicated returns.
“I’m an average person. Help me!”
Even though I work as an IT auditor, people expect that a Chartered Accountant should know how to file a basic tax return.
And it’s a good assumption, really, because almost all of them have spent a hundred hours studying the Canadian Income Tax Act, and many have spent many days preparing other peoples’ tax returns. Although the ITA is a big fat scary book printed on the thin paper you find in hotel night stand Bibles, but filing tax returns is relatively straightforward for most people because the forms are, to me anyway, rather easy to follow.
“Oh yeah, why’s it so easy?”
Here’s a quick overview of what’s in a return.
Your basic tax return basically has 3 sections: The “jacket”, and a few ‘schedules’.
Schedule is accountant speak for “worksheet with numbers and calculations on it“. You or your accountant will fill out at least two schedules – the sections I referred to. One for the Federal government, and one for your province.
You take the numbers calculated on the jacket, and then work on the schedules.
On one page you calculate how many ‘credits’ you’re getting, on the second page you calculate how much tax you owe. If the credits are bigger than the tax you owe or have paid, you get a refund.
You will get a big fat guide in the mail or at the post office explaining what each of the lines in the schedules mean. If you have a lot of possible tax credits and don’t feel like reading the instructions then go ahead and spend the $20 to $80 to have someone else do it for you, and skip to the next section.
If, however, you want to do it yourself, remember – it’s pretty easy. Start with the “Jacket”. On the front you enter your name, birthday and similar info, and on the second page you’ll enter your income information.
At this point you’re going to look at that T4 slip you got in the mail, and read the instructions on it – they might be on the back. It’ll say, “enter box 14 on line 101” and other helpful hints. Once you get started you may find yourself saying, “gee, this is suspiciously easy.”
It certainly is. You may find yourself laughing at your friends for spending $80 when you got it done by yourself in an hour or two; faster if you’re a keener.
How long does it take me? I can whip through a return on the computer in five to ten minutes. If I’m helping someone by hand, ten to thirty minutes. It helps when you’ve had practice, of course!
“How do I make it all easier?”
That means you better hold on to your receipts and slips. If nothing else, one big fat envelope will save you countless headaches, because you’ll have all your tax receipts in one place.
Get a big fat envelope. Write “2007 TAX” on it. And keep it somewhere safe. If you get paid with cheques, put the stubs in that envelope. If you get a T4 at the end of the year, put that in instead. If you’re on social assistance, put all those T4A (OAS) and other slips in the envelope.
If you have more than a few slips, you’re going to want to organize things a bit more carefully, but not losing your slips is the first step.
If you’re organized, the tax preparer will find your papers faster and if they’re charging you for time spent rather than for the job itself, you may save a few bucks. Or, at the very least, you’ll reduce the chance that they’ll make a mistake and they’ll finish the work faster, getting you your refund that much faster.
“What? I can get Ontario tax credits? Yay!”
If you’re from Ontario, and either a senior citizen or earning a ‘low income’ – something below $30k a year – then also make note of how much rent or property tax you’re paying for the entire tax year. Your accountant will use this information to calculate a possible tax credit that can be worth anywhere from about $100 to over $800 depending on your income level.
Keep those papers once your return has been filed. If you’re going to get your 2007 return filed, bring your 2006 return with you – hopefully you have a copy. If someone needs to figure out something strange, it’s great to be able to refer to last year’s paperwork.
“I switched jobs! Oh no!”
If you just work one or two jobs things are pretty straightforward. You’ll have a T4 slip, which is just a summary of what you earned over the course of the year, and perhaps some other slips mailed to you from your bank if you have a nice savings account.
If you’re using tax software, you’ll individually enter each T4 on its own ‘screen’. If you or your accountant is dealing with a paper return, you’ll just add up the totals for each ‘box’.
To make life easier, make a separate envelope for T4’s, one for T3’s, and so on. This is especially important if you have many of them.
Think about adding up the totals yourself. Your accountant will add them up a second time, and compare her total to yours. If they match, hurray. If not, the mistake will be corrected, somehow.
“But I’m my own boss!”
This is where things get more complicated, and a little fun. If you run your own business or have complicated investments, the “one big fat envelope” approach needs a bit more love and care.
And by that I mean, only use that approach if the alternative is a desk drawer or shoe box of papers. At least the envelope will separate your tax papers from your candies.
The problem with this approach is that things won’t be that simple. You need to keep track of how much you spent on things for your business, and how much people paid you. If you were paid in cash, you need to track those dollars. And if you haven’t established separate accounts for your business and your personal use, things are going to be a bit tricky. I could go into detail, and very while might, but this has already been written about before. Read on.
“Call for help, now”
There are more excellent tips for small businesses available at www.tastytax.com which I recommend you check out. The author there doesn’t do personal returns, so he’s only interested in sharing useful information rather than selling you something. Sort of like me, I suppose – except he’s writing mostly about the American scene, which is, however, pretty similar to how this all works in Canada.
Good luck and remember, the Canada Revenue Agency will actually help you! Just call with questions you don’t feel like paying an accountant to answer. And while CA bloggers can’t give you official tax advice for legal reasons – not the least of which is because we don’t have enough details about any individual scenario to know if the general answer we’re providing works in your situation. So ask the CRA and you’ll get your questions answered with way more certainty.
So call 1-800-959-8281 to speak to an agent, or hit http://www.cra-arc.gc.ca for other inquiries.
Expenses. Accountant will figure out what is allowable. If possible, document why you believe you can expense it in advance.
Thanks to Nancy for having me over. Hope this helps you this spring.