Yahoo Finance Should you do your own taxes or seek professional help?
With tax season quickly approaching, many Canadians will be forced to make the tough decision of whether to wade through a year of crumpled receipts and documents alone or to dump them onto the desk of a seasoned professional.
Both have their respective pros and cons, but which is the right approach for you?
Jamie Golombek, managing director of tax and estate planning with CIBC, told Yahoo Finance Canada that ultimately there’s no golden rule and taxpayers need to weigh a variety of factors.
Price
When you’re in the process of seeing how much money you owe the government in taxes, the prospect of shelling out more money to hire an accountant or another professional is hardly appealing for many.
In fact, a 2013 survey found that nearly 46 per cent of Canadians are opting to file their returns themselves.
And Golombek said there are more than dozen types of do-it-yourself tax-preparation programs on the market helping them do it.
But he said a “reasonable” amount for taxpayers to spend on one is about $50, but some are offered for free.
Golombek called them a “great investment” and said that many of them now have features that help make it easier for users to file year after year, such as storing all your info and allowing them to prefill their returns by downloading their slips using the Canada Revenue Agency’s latest software.
So if you want to save, go it alone, he said.
Meanwhile, hiring a tax professional to handle your return can cost hundreds of dollars.
Golombek said some accountants may charge several hundreds of dollars to file a return, while others charge based on the number of slips brought in by a client.
In cases of particularly complex filings of high-net individuals, he said it can cost thousands of dollars.
However, Golombek said they should offer an estimate based on last year’s return.
“(They should) speak to someone who they like, they trust, who has given them some tax-saving ideas in the past,” he said.
“Ask them what it costs, and make sure you’re getting some value, because, if not, you can do it yourself.”
Long-term vs. short-term goals
While filing your taxes yourself may save you some coin this year, seeking professional help could open your eyes to ways to save more down the road.
That’s why Golombek recommends that Canadians get an accountant, financial advisor or tax preparer to look at their return at least once in a while.
“Most of people think of tax time as just a chore you have to do. They file the return and maybe they get some money back,” he said.
“But I see it more as a tax planning opportunity … Instead of just focusing backward, (you look at) what could you do in 2017 to save taxes throughout the year — that’s where I think a real professional adds tremendous value.”
Educational opportunity
Golombek said a knowledgeable tax preparer will be able to walk you through a return, so you can learn from it.
However, if you’re really looking to up your financial literacy, he advised Canadians to file their taxes themselves. In fact, he said everyone should at least attempt to do so.
“I think a lot of people don’t have the time, they don’t want to make the time, they don’t want to understand — that’s fine,” he said.
“But they should understand at least the different types of income, how they’re taxed, the different types of credits, the different deductions that are available. I tell people take ten minutes and just read … the four pages of the form. Read every line … and see if it applies to you — maybe it will spark some interest.”
Time
Even if you’re strapped for time, Golombek said this is no reason not to file your taxes yourself.
He estimated that it would only take a couple of hours minimum for someone with a relatively simple financial situation who knows “nothing about it.”
But after years of practice, that same person could do it in five to ten minutes.
“For someone is that an (average) employee who has no other income, other than employment income, and everything is a tax-deducted source, a lot of the software is so easy to use that you can just plug in the stuff yourself,” he said.
“There’s an interview session where they’ll ask you all these questions. They give you tips … It’s very easy to do,” he added.
Complexity
However, there are a few cases where Golombek recommends that people seek professional help.
In particular, he specified people who are self-employed, own a rental property or have a complex investment portfolio.
Golombek said people who are self-employed may be entitled to a variety of deductions and depreciations, as well as require special forms that they might not be aware of.
Those who own a rental property are also in a similar situation where it may be trickier to figure out what can be deducted from their rental income and expenses.
Golombek said taxpayers who are buying and selling a variety of stocks and securities throughout the year, some of which may need to be converted from U.S. dollars to Canadian, or individual transactions involving stock dividends, “more than your basic mutual fund portfolio,” should also get professional help.
Responsibilty
Meanwhile, those who plan to file through a tax professional because they think they will be absolved of all responsibility if there’s an error should think twice, said Golombek.
He said that you can’t “abscond your responsibility.” Golombek cited a case where — despite the fact that the taxpayer argued that his return was “entirely prepared, reviewed and filed by (his) trusted, longstanding accountants” — he received a penalty for gross negligence in failing to report nearly $19 million of taxable dividend income.
“Even if you hire a professional you better know what’s in your return, you better understand it (and) you cannot put the blame on the professional at the end of the day for negligence,“ said Golombek.
