As Canadians head through tax filing season, professionals say missed deductions and a fear of making mistakes are among the biggest obstacles for many people.
Tax software removes mistakes in arithmetic, but people need to be aware of how any changes in their lives will affect their taxes, said tax guru Evelyn Jacks.
“The errors of omission are going to come from you,” said Jacks, who has written more than 45 books on taxes and wealth management.
She said the goal should be to pay the least tax allowed by law.
“What you want to strive to do is pay the correct amount of tax and no more.”
But Canadians commonly fail to make all their eligible claims for medical expenses as well as moving expenses such as such as real estate commissions, Jacks said from Winnipeg.
“People just don’t know what’s claimable,” she added.
Examples of claimable expenses include: the cost of widening a doorway to accommodate someone in a wheel chair, hearing aids and hearing aid batteries.
“People don’t understand that they can adjust their tax returns if they miss something and you can basically go back 10 years on most federal provisions. So if you become aware of something, maybe a pro can help you recover taxes from the past.”
Nazima Rayani of tax software maker Intuit said fear of mistakes also looms large.
A recent survey by Intuit found that 38 per cent of respondents thought they would miss deductions due to a lack of awareness.
Twenty-five per cent surveyed said they have never done their own taxes and a majority of those said it was because they were afraid to make a mistake, Rayani said.
As for tech savvy young people born between 1980 and 1995, the survey found that only about a third planned to do their own taxes using software while 26 per cent said they would go to a professional accountant.
“We know that they’re very comfortable using technology, but for some reason the issue is really a mis-perception that filing your taxes using software is somehow difficult or scary,” said Rayani, who’s based in Edmonton.
How to deal with investment income can also be challenging for Canadians.
“While many Canadians are familiar with the basics of tax preparation, there appears to be a knowledge gap particularly on investment income,” said John Waters, head of tax and estate planning at BMO Nesbitt Burns.
A study by BMO Nesbitt Burns found that 58 per cent of Canadians weren’t sure about how capital gains are taxed and 33 per cent lacked knowledge on how charitable donations are taxed.
Jacks said Canadians also need to be aware of the family caregiver tax credit if applicable and changes to the Canada Pension Plan and Old Age Security.
Beginning in 2023, the federal government is gradually shifting the age of eligibility for old age security and guaranteed income supplement payments from 65 to 67.
“You really need to inform yourself so that you can set up your affairs to benefit from the tax system.”
Most tax software packages optimize expenses that can be transferred between family members, Jacks said.
“The family economic unit is going to do better when you file your tax returns together because we can transfer things back and forth.”
Jacks noted that the average tax refund for 2011 was just under $1,700.
“A refund is not necessarily a good thing because that’s just the money you have overpaid.”
The deadline for filing 2012 income tax returns without late penalties is April 30.
5 common tax mistakes:
According to tax experts, these are five common problems that can cause mistakes when people file their tax returns:
1. Miss deductions such as medical, transit pass and caregiver credits.
2. Lose or misplace receipts.
3. Unaware of changes to tax laws.
4. Don’t understand how investments are taxed.
5. Don’t understand how to transfer tuition or medical expenses between family members.Report Typo/Error