Tax software: What will work best for you?
'Taxes tend to be terrifying for people and this takes away the fear,' says tech expert
If you're like most Canadians sitting down to file your tax return this year, you will likely be using tax software on your home computer to put everything together and send it off to the Canada Revenue Agency.
Filing online is more than just a trend in Canada: it's a practice that's expanding every year.
In 2015, the CRA processed 28 million income tax returns for individuals, and of those returns, 82 per cent were filed electronically. That figure was up from 80 per cent in 2014.
- Tax time 2016: special report
- Tax time 2016: New for filing this year
- Canada Revenue Agency automates most of your return
So what do you need to know to get with the program and file electronically?
The starting point is understanding how easy it is to use tax software, especially if you have your paperwork (e.g. T4 slips and other financial forms) in order, experts say.
"It's fairly simple for a basic tax return," said Mary-Anne Beatty, chief financial officer for Credit Canada.
The advantage of using a tax software program is that "it mitigates the risk someone will do something wrong," said Marc Saltzman, a syndicated technology columnist based in Toronto.
Check the list
The best place to start is the CRA website, which lists all the products certified for its 2016 Netfile program. Certified products are broken down into three categories:
- Desktop products (for Windows and Mac users): 19 different programs are certified for 2016
- Online products: 11 different programs are certified
- Mobile products: 6 programs are certified
Among the brands listed are familiar ones, including TurboTax, StudioTax, H&R Block, UFile and SimpleTax.
All of these products are deemed Netfile compliant, meaning that once you select the software and enter all your information, you can file your tax return directly to the Canada Revenue Agency.
Being Netfile compliant is key, said Jonathan Farrar, with the Rogers School of Management at Ryerson University.
It's extremely user-friendly and prompts you step-by-step with questions that tend to be yes or no.- Jonathan Farrar , Ryerson University
"The entire time to Netfile takes one or two minutes when the person has completed their online tax return," he said.
"If it is not compatible, the taxpayer has to print off everything and mail in all the forms, which defeats the purpose."
Free … or not so free
Some software is free, or free with restrictions. (For example, some software does not support tax filings in Quebec.)
"Free software is just extremely basic and lets taxpayers file their own information — and you're on your own," Farrar said, adding that "a lot of programs "are free technically and then they ask you for a donation."
For many, the choice between paying up front and paying later will be "six of one and half-a-dozen of the other," he said.
Using the software is straightforward, Saltzman said, with the software guiding you to enter all relevant data one step at a time.
"It's pretty much a 1-2-3 process if you have a pretty basic set-up," Saltzman said.
"It's extremely user-friendly and prompts you step-by-step with questions that tend to be yes or no," added Farrar.
While basic, free software packages will work for most people, you may need to pay for more deluxe versions if your taxes are more involved.
Deluxe versions of software will come in handy, Farrar said, "if you have things like rental property or a lot of investment income."
As well, "maybe you have a certain form and you can't find where to enter that information — suppose you get income from a RRIF [Registered Retirement Income Fund] and you are having difficulty showing that you had income from that RRIF," he said.
Paying for more support
Paying for software may bring you extra help down the road.
"A lot of the ones you have to pay for, they will ask you to upgrade, to get something like audit protection," Farrar said. "A free one won't ask you for that."
Beatty agreed, pointing out that a company might offer several versions of its software.
"A lot of the products have a basic product for basic returns, then a standard product and a premium product," Beatty said.
Which is right for you will depend on how sophisticated your tax needs are.
"It's not a one-size-fits-all scenario," said Saltzman. "There are four of five different tiers of service. It goes up based on your needs and how many returns you are processing."
If you're not sure what to do, that's when you might want to consult a tax expert, said Robert Gore, a chartered accountant in Toronto who does personal and corporate financial and tax planning.
Professional support can help you sort out such issues as:
- If you are self-employed. (Some people do not know what is a reasonable amount to claim for a proportion of their car expenses, or how to claim home-office expenses.)
- If you have commission income.
- If you have complex investment income, including capital gains.
- If you have rental income.
Whatever software you use, Farrar advises that you make sure you know the site is secure.
"Depending on the program that you use, it may be stored off-site with a third party or it may be stored on your device," Farrar said.
"Go to the website of the particular software provider and see how secure it is — you're trusting a third party to keep your confidential information," he said.
The Canada Revenue Agency also cautions about security on its website. "The CRA does not look at the privacy policies of software developers. It is your responsibility to research these policies before buying or using a software product or web application," it states.
A common consensus among financial advisers is that anyone using tax software can avoid a lot of headaches by relying on tried and true names.
"Stick with the brand you know and trust. It'll be just fine," Saltzman says. "If you stick with the best known ones, you're sticking with a firm that has been around for a long time."
As well, Gore also noted that "if you stick with one of the better known packages, it won't be buggy and have the risks of limitations."
'Know what you're doing'
For those challenged with things like addition and multiplication, tax programs can be a big help, Gore said. "One of the benefits of using a piece of software is that it does the math for you."
But at the end of the day, you're still only as good as the information you input, even if you use the CRA's auto-fill function.
Whatever software you're using, experts point out that you may need to double-check that you've covered all the bases in your filing.
"If you are trying to use a tax software for the first time and you have a complex filing, the risk you are running is that the software only takes what you put into it," he said.
"It won't prompt you, necessarily, about the things you could claim," he said.
Beatty agreed, saying: "The programs will do the work but you need to know what you're doing."
Keep a copy
Saltzman said first-time users are often pleasantly surprised at the ease of the process. "Taxes tend to be terrifying for people and this takes away the element of fear," he said.
When you finish using tax software, there's one last step you might consider taking.
"It should be all fine," Saltzman said. "But it's a good idea to keep an old-school backup for yourself.
"It doesn't hurt to print a hard copy."