For penny pinchers, buckling down and doing your own taxes each April may seem like a no-brainer.
But financial experts warn that saving a few dollars up front might end up costing you more on your tax return.
“If your taxes are straightforward... (and) you want to do them yourself, it’s not a bad idea,” said Alim Dhanji, a certified financial planner in Vancouver.
“But if it gets more complicated... then hiring a professional can save you a lot of money because there’s a lot of items that are often overlooked, and it’s hard for an individual to keep up with all the new tax laws.”
Dhanji, who works at Assante Financial Management Ltd., says there are areas that can be used for tax savings that personal filers can forget about, including income or pension splitting and deferring RRSP contribution room.
And not knowing when, or if, you should take advantage of these credits can result in thousands of dollars of lost savings.
According to the latest statistics available, the Canada Revenue Agency says 26.1 million Canadians filed a tax return in 2010. Among all filers, 48.2 per cent did their own taxes while 51.7 per cent hired a third party.
Cost is cited as one of the top reasons why Canadians opt for the do-it-yourself approach when it comes to tax preparation.
Experts say people should expect to pay anywhere from $20 for tax computer software and at least $50 to file at a clinic.
Average rates from tax professionals can range from $150 per hour to $500 for a complicated return involving many slips.
Cleo Hamel, a senior tax analyst with H&R Block Canada in Calgary, says Canadians have a myriad of choices when it comes to getting their taxes done by the April 30 deadline.
But she cautions against pen and paper returns, unless filers have previous experience or adequate tax knowledge.
Instead, Hamel says, buy the computer tax software.
“With the pen and paper method, you have to know how to enter everything into the tax return. You have to know what other forms need to be filled out and do all the calculations,” said Hamel.
“It seems quite simple but we are all capable of making a mistake... Some of the most basic errors are from doing it manually.”
With popular tax software, like UFile or Intuit’s TurboTax, filers are taken through the process step-by-step, and have the option of going back and fixing numbers to see how changes might affect the amount of their return.
Even so, tax software usually works best with simple returns, she said.
For instance, those who are self-employed, own rental property, have an inheritance, investments or complicated medical expenses should consider seeking professional help.
Either way, the most taxing thing about filing a return is ensuring that you are financially savvy enough to be confident in its accuracy — even if it’s completed by someone else.
Ultimately, the Canada Revenue Agency views the accuracy of the return as your responsibility and not your accountant’s.
“It’s important to understand tax planning. It’s a full package,” said Hamel.
“You should be going over the results of that tax return, why you got a refund, what things you did in the past year that helped. We encourage people to ask questions.”