Maximizing Refunds: Tax Software Makes Filing Painless
Run The Numbers ……. And Learn
It’s that time of year again so I’m running this post as a friendly reminder that completing your annual taxes doesn’t have to feel like a death sentence. If you’re like me you probably enjoy completing your yearly tax return about as much as you enjoy paying tax in the first place. It’s a task many of us dutifully complete with little excitement.
Years ago I remember doing my taxes the old fashioned way with pencil and eraser and the aid of a calculator. For a while I despised doing my taxes to the point that I actually paid to have someone complete them for me.
The Benefits of Software
Then something quite remarkable happened. I shelled out forty dollars and bought an automated tax software program. Suddenly the task of completing my annual tax return became simple and, dare I say, almost enjoyable. I simply follow along and answer questions, while the software does all the number crunching. It even provides recommendations in case I miss a possible deduction.
Revenue Canada (CRA) provides a list of free and paid tax software that will Netfile.
I have an online account with the Canada Revenue Agency (CRA). This means that I can even automatically download all my T-Slips. Once I complete the return, the software allows me to file it electronically directly to the CRA. The few dollars I pay each year for this tax software program greatly simplifies the filing process. Bonus: the standard package allows us to file up to eight different tax returns.
Added Benefits of Software
There are, however, a few added benefits I hadn’t realized. The software teaches you a great deal about how our taxation process works. The amount you’ll receive (or owe) is constantly displayed as you complete your taxes. Therefore, you can see how that number is affected when you add income, RRSP contributions, charitable donations, deductions and so on. Without realizing it you suddenly become aware of the effects these have to your bottom line.
“What If” Scenarios
The other great benefit is the ability to run the numbers and play some “what if” scenarios. Suppose you are entitled to a small tax refund. Why not temporarily increase your RRSP contribution and see how it changes that refund? Running these numbers will quickly show the huge benefits of an RRSP contribution if you are in a high tax bracket.
You could also do the same exercise with your charitable donations. You’ll also quickly realize that contributions to a tax free savings account (TFSA) have no effect at all on your tax calculations.
Maximize Deductions
The same principle applies to deductions. If you’re not sure if a deduction such as medical or moving expenses are worth declaring, simple add them in and run the numbers. Running the numbers has consistently shown me that the Northern Residents Credit, Energy Credit, and Climate Incentive Credit have little effect on my potential refund. (I rarely qualify for Trillium benefits, but your situation may be different).
Since we all have to complete our taxes each year why not make it a learning exercise? The computer software available is inexpensive compared to the knowledge you’ll gain. The ultimate benefit is to apply that knowledge to the future to help shelter your income from taxes and maximize your potential refund in future years. Make this exercise a part of your annual financial review.
In my E-books (“Water Barrel” and “The Balance”) I discuss simple methods to live sensibly for today, take charge of your financial affairs, and invest safely for the long term. For more information please visit David Penna Amazon.
As always, I am not a qualified financial advisor. I just relate financial management to my own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of mine came from expensive experiences.