Originally Published December 29, 2018
Updated February 26, 2020
Andy Williams said it best, “It’s the most wonderful time of the year!”
Okay, maybe not.
Taxes can be scary.
Uncomfortable for some. Frightening for many.
Tax preparers have been making a lucrative living off of the general public for decades. Similar to the average asset manager or financial advisor, they profit from your fear. But you really shouldn’t be afraid. Tax filing for most people and families is very straightforward. In many cases, filing on your own consists of a very minimal number of steps. Below I will outline the key things you should be doing and checking off your list to file your own taxes.
PLEASE NOTE: This should not be considered a complete guide for personal tax filing and is merely provided to assist with filing your own taxes. Should you have a more complex tax situation or simply need assistance with filing your taxes, consult a tax professional.
I know, I get it.
Planning is the step that we typically like to do the least. It’s the same reason that we don’t check the directions to our destination before we jump in the car and plug it into our GPS or Google Maps or Waze. Societally, we are being trained to do things on demand. However, planning is the single most important part of your tax filing.
Since 2019 has come to a close, the majority of the opportunities available for strategic planning have come and gone. However, as you work through the process for the 2019 filing, this should be able to give you a sense of the opportunities available to you for the 2020 tax year.
In general, if you have any simple questions, the CRA website is a great resource and is generally well laid out and makes things easy to find. When in doubt, the search function should get you to the information that you are looking for. The site typically includes many simple examples laid out for a layperson to understand.
An excellent idea to aid in your tax planning and preparation is to enroll in the CRA e-service My Account for Individuals. This tool gives you access to your notices of assessment, previous tax returns, RRSP/TFSA contribution room balances, as well as managing your personal information, such as direct deposit information and mailing address.
In addition to planning for your tax preparation, tax planning is a critical component of the Novel Financial Fee-Only Financial Planning Process. Our mantra is that every taxpayer should pay every single dollar of tax that they owe, but we want to help make sure that you don’t have to pay $1 more than is absolutely necessary through a well-devised Fee-Only Financial Plan.
The most important part of a tax filing may not be the filing that you are thinking of. Having a good document filing system makes the tax process exponentially easier. Gathering your documents is a task that is best done throughout the year, and not right at the end. Find a safe place for you to gather these documents together and make a habit of regularly storing them there.
Given that most of what we do is online today, many of these will be digital files. Create a folder in your email, create a cloud storage account (such as Dropbox, iCloud Drive or Google Drive, OneDrive, Box, etc.), attach a USB drive to your key-chain or use your computer hard drive (with proper backups for physical storage!). Novel recommends using a cloud drive, as it ensures that the most up-to-date security practices are used and that you do not need to worry about backups/losing your data. An excellent review of available cloud drive options is available here. We also recommend that if you do receive hard-copy documents, take a picture and store it digitally. At the end of the day, find a method that works for you and ensure that you stick to your document storage plan.
Try to store your documents in folders that are grouped based on document type to make things easier come tax time.
Examples of items to gather throughout the year, and that you should group separately:
- Medical expenses
- Union or professional dues
- Charitable donations (official receipts)
- Childcare costs
- Moving expenses, if you moved for a new job or for education
- Licensing examination fees (i.e. Tradesperson or Professional exams)
- Support payment documentation (i.e. spousal support)
Items to gather at year-end:
- Investment account statements for non-registered accounts
- Interest paid on student debt
- Interest paid for the purposes of investing and other investment-related expenses
- Property tax invoices
- Rent receipts for rent paid to a landlord
- Eligible Tuition amounts receipt
- T Slips
- RRSP slips
- Issued for 2 periods
- January to February of 2020
- March to April of 2019
- NOTE: The Jan-Feb 2019 slip will have/should have been filed on your 2018 taxes.
- Issued for 2 periods
- Workplace pension contribution Slips
NOTE: Not all of the above items listed will be relevant for your situation.
The CRA website offers a full list of deduction and credit opportunities.
Use Tax Software
Save some trees. The option to paper file is available, but effectively no one does so.
If you haven’t tried using some of the various software out there, you may be surprised at just how easy they are to use. There are many offerings available, and pricing varies by your needs. In fact, some options offer a “pay as much as you’d like” option or offer free return filing for simple tax returns.
Here is a full list of NETFILE certified software options.
As well, here is a review of some of the more prominent tax filing options available.
Tax Filing Time
Now that you are feeling comfortable to tackle the not-so-scary beast that is filing your own taxes, here is a helpful checklist to follow throughout your process.
- Enroll in a CRA My Account for Individuals
- Choose a NETFILE certified software provider
- Start by taking the interview in the tax software or use the search function to find the document types that you have collected.
- This may also help you identify what
- Ensure that all of your T slips get entered somewhere in the software
- Address all of your deduction and credit opportunities available to you
- A good rule of thumb is that if you have a document saved, ask yourself, how did you use this on your tax return?
- Be strategic with your RRSPs
- Ensure that for your 2019 taxes, you have included the Mar – Dec 2019 and the Jan-Feb 2020 RRSP slips
- Determine if you want to deduct in the current year or defer to 2020. You should potentially consider a deferral if your 2019 income will be much greater than in 2019, or will be in a higher tax bracket.
- The software packages tend to focus on maximizing your refund in the current year, which may not be appropriate for your situation.
- Review the errors and warnings in the software
- The software out there typically provides warnings or suggestions at the end of the process. Determine if these apply to your situation and amend as required.
- Ask for help
- The average tax software has either a help or forum function available to help you through the process.
- Some can even connect you with professional tax preparers to have your questions answered.
- File your return using NETFILE, via the software that you have chosen
- Save a copy of your NETFILE confirmation
- Save a copy of your electronic tax return from the software
- Select the option for the T1 and all supporting schedules, etc.
- If provided with a Notice of Assessment at time of filing, save a copy as well
- This will be your first official 2019 tax planning document!
- This will also be available via CRA My Account once your return is processed, if not available immediately via the software.
And… ta-dah! You have officially filed your own taxes. Was it truly that daunting? I believe that you will have found that filing your own taxes isn’t as difficult as you might have thought. Another benefit of doing this for yourself is that you now understand the process and typical items that could be potential tax planning/saving opportunities. Novel would be happy to discuss potential tax planning opportunities for 2020 with you as part of your Fee-Only Financial Plan. Contact us to discuss tax planning strategies as well as to discuss how to best utilize your tax refund!
Conversely, if you are still uncomfortable filing on your own or have questions, Novel can support you through the planning process and will refer you to qualified tax preparers.
Questions, comments, anything to add? Please reply in the comments section. We would love to hear from you.