Many Canadians, in recognition of their limited understanding of the tax system, will utilize the services of professionals for help. I am a strong advocate of getting help and advice so here’s a few thoughts to help you find the right advice.
Tax preparation vs Tax planning
The first thing to consider is whether you need help with tax preparation, tax planning or both.
There is a big difference between tax preparation and tax planning. Every spring, Canadians start getting ready to file their income tax returns. It is at this time of year when we assemble our receipts to figure out how much we earned and how much will have to pay as a result. It’s tough to do any sort of strategic planning because everything has already happened.
Tax preparation, therefore, is really the act of summarizing the historical events of the past year. Tax planning, on the other hand, allows an individual to look into the future and try to develop both long-term and short-term strategies to minimize the tax bill.
Getting help with Tax Preparation
When it comes to getting help filing your taxes, there is no shortage of places, to go. Just look around at tax time and you will see a plethora of advertising. Generally, there are three places to get help complete your return:
Years ago, it you did your tax returns by yourself, you sat down with ‘the package’ from the government, a calculator and a pen and you followed the instructions. Although some people still do their returns by hand, more and more do-it-yourselfers are now using Canadian tax software you can buy to make everything easier. All you have to do it enter the data and the program does most of the thinking for you.
TurboTax (formerly QuickTax) is probably the biggest and most well-known tax program. Ufile is another program with a web-based option. I’ve never used these programs so I am unable to provide any recommendations or insights but here’s a TurboTax review from my friend Tom at Canadian Finance Blog.
Tax preparation has also become big business. Just look at H&R Block, which is one of the tax preparation giants. They train ordinary people to enter your data into tax filing software programs and the hope is they know more than you. Tax preparers can be found in many places including supermarkets and malls. They are generally they are a low cost alternative for tax preparation.
Just like any service industry, there are good tax preparers and bad ones. The bad ones can be really bad. In fact, tax preparers have been identified by CRA as a group at higher risk of tax non-compliance.
The Better Business Bureau also cautions that consumers can run into serious problems if they don’t do their research to find a reputable tax preparer. The BBB suggests that you ask about their training, experience and knowledge of current tax law, and whether they are members of a professional organization with continuing education requirements and a code of ethics.
An accountant (CA, CMA, CGA)
Choosing and accountant is a bit like choosing a financial advisor. There are so many different accountants to choose from. Firstly, there are Chartered Accountants (CA), Certified Management Accountants (CMA) and Certified General Accountants (CGA). There are also accountants that specialize in audits; others that specialize in business and corporations; some that focus on bookkeeping services and even generalists that
Generally, an accountant is going to cost more than a tax preparer and in most cases that should be the case since they go through a lot more education and have more responsibility and accountability from holding a professional designation.
I don’t have all the answers but I think the more complicated your tax return is, the you should look to an accountant vs a tax preparer. This might include having a business, foreign tax issues, complex investment calculations, or rental properties.
My two cents
Whether you use tax preparation software, a bookkeeper, accountant, tax lawyer or family member, it is ultimately your responsibility for any inaccurate or incorrect income tax returns. The best thing you can do is familiarize yourself with how taxes work and engage in your financial affairs. You don’t have to become a tax expert but it’s good to understand some of the basics like the difference between marginal tax and average tax. Focus more time on tax planning than preparation.