Doing your taxes: Myths, Reality Checks, and How soon to send them
There was a little discussion happening on Twitter (@saverspender) that I thought perhaps the rest of you might like to be interested in listening in on, post-tweet.
IF YOU MOVE UP INTO ANOTHER INCOME TAX BRACKET, YOU’RE STILL MAKING MORE MONEY
A common misconception out there is that if you move up an income tax bracket, you’ll lose all your money to the government. I can’t begin to tell you just how silly that is.
Once and for all, I’d like to show you a little chart that I whipped up comparing taxes from one tax bracket to another.
Canada and Ontario Federal income Tax Rates and Brackets
Above chart was created based on the information provided on the Canada Revenue Agency (CRA)’s website for 2013.
If we look at the total combined taxes of Canada and Ontario this is what it looks like:
Jumping up $10,000 each time to the new tax bracket, brings you more absolute taxes, but the simple fact of the matter is you are still making $7134 – $5659 MORE MONEY overall.
If you went from making $50K to $100K, you’d be pulling in an additional total of $39,292 NET a year.
If you decide to also max out your RRSP (Registered Retirement Savings Plan) contributions (calculated at 18% of your income), you can lower those taxes even more.
Anyway, the grand takeaway is:
If you make more money, even though you will pay more taxes, you still MAKE MORE MONEY overall.
I never, ever want to hear any kind of ridiculousness about not wanting to make more money because the government will take it all in taxes.
NEVER. You hear me? NEVER!!!!! 🙂
WHY I DON’T MIND PAYING MY TAXES
Taxes in general have never really bothered me mentally.
Sure, it sucks when I have to pay taxes and I could keep the money instead, but when I earned that gross income, I knew that part of it wasn’t mine to keep, anyway.
The alternative would be any of the following 3 major things for me:
- Not having street lights and a safe environment with police officers and the like
- Having EVEN WORSE potholes and nasty roads to drive on during our snow-filled winters
- Not having universal healthcare — a BIG advantage that we Canadians don’t fully appreciate
..among all the social programs, parks that need to be kept clean and save for families and so on.
So unless you’ve been living in Montreal for the past while, where they’ve had to deal with corruption, paying your taxes is something that keeps a country going, and a city properly kept.
Just look at Greece — it is a well-known secret that their citizens didn’t pay taxes for years, and STILL don’t think they have to.
They thought ANYONE who paid income tax was a donkey, and they were proud to be tax evaders as a community and culture.
Look where they are now.
I have always found it a touch sad that such a great civilization that brought us democracy among other great ideas that are still in effect today in modern societies all over the world, could be reduced to… whatever you choose to call them today.
There are certainly plenty of tax evaders all over, not just in Greece, but even though I don’t LOVE paying more money, but I do it because I know where it goes (in general).
I’d rather have a properly-run country than to take the short-term gains by cheating the government each year and end up in retirement, wondering what the hell happened to the country I have to live in for my golden years.
Plus, I have had a healthy fear of authority ingrained into me ever since I was a little kid, and I am honest to a fault, even to my detriment at times.
TAX ROUTINE EACH YEAR
1. WAIT FOR MY TAX SLIPS TO TRICKLE IN FROM INVESTING
- Ally Canada
- ING Direct Canada (referral code 32726976S1 to get $25)
- TD Canada Trust
- Questrade Canada (referral code o0soehds to get $50 in free trades)
- (I don’t have a T4 because I’m self-employed and I take a salary in dividends)
I hate waiting for them to come in because I’m impatient.
I wish I could just get the preliminary look at them online, and then they can mail the official pieces of paper for my records whenever they want, even if it’s past the deadline for taxes, because I always file online anyway.
2. DO MY TAXES IMMEDIATELY AND GET AN IDEA
Sometimes I can’t wait for all my tax slips and I am too eager to start figuring out what I owe, so I put the max, or more than what I earned.
I never get a refund any more, and I’m one of those freaks that likes to have things squared away early.
Old-Fashioned Way: Pen and Paper
Ever since I started making an income to declare (age 7), I’ve been doing my own (simple) taxes by pen and paper with the help of my parents reading out the forms to me.
As I got older, it became a habit.
It’s a good practice for kids to learn how taxes work, and it erases any fear of doing them — they really aren’t as hard as you might imagine. Just as it is with personal finance, it’s basic addition, subtraction, division and multiplication.
Then I switched to a software sometime in 2009 after years of paper, and never looked back.
It’s just so much easier, and well worth the money to me.
Free Canadian tax software: Studio Tax . com (not .ca!)
I tried using them this year, but they are too simple for me.
If you’re a student, or just have simple wage-related taxes, I suggest Studio Tax as a free electronic way to do them versus using a pen and paper.
- Simple to use
- Looks reputable
- Doesn’t have everything for the more complex filer (a.k.a. me)
- Needs a PC to install, may be a problem for those of you with Macs
- Have to learn how to convert it into a “.tax” file to be able to file it with the CRA
Paid Canadian tax software: UFile — $20
I just chose them at random and have stuck with them year after year so that when I go to do my taxes for the next year, I just upload the file from the previous tax year and everything copies in.
I buy the software, split the cost with my siblings, and after I install it on my computer, I hand the CD to them so they can install it too.
You can do up to 8 tax returns with one CD.
So find 7 friends and you’ll end up only paying $2.49 each, before taxes.
I like using a software because it’s easy to do, and when you enter a figure that needs to go elsewhere, the system automatically does it for you.
Plus, you can play around with your credits to see whether you should hold on to them for a tax year where they have the most benefit in reducing your taxes, or use them immediately.
Sometimes it makes suggestions as well.
In other tax-related awesomeness, Timeless Finance for his 1-year anniversary is giving away $250 cash or TurboTax to Canadians in this giveaway post here. Ends on Valentine’s Day 2013.
3. EITHER FILE THEM IMMEDIATELY OR WAIT UNTIL THE VERY LAST MINUTE DEPENDING ON WHETHER I HAVE TO PAY OR NOT
If I get a refund (or don’t owe anything), those taxes get filed at the earliest damn moment possible. I want my money I’ve been lending to the government for so long, all the way back!
I haven’t had a refund in ages.
The last refund I got was right after college and my tuition credits kicked in something fierce and lowered my taxes significantly.
If I have to pay, I wait until the very, very, last minute (a week before the deadline), and use their money loan-free as long as possible until I have to fork it over.
I e-file, and I pay online, so I only have to do it about a week before the deadline to ensure I don’t actually miss the deadline (takes about 2 days for things to process).