Monday, April 21, 2008

Income tax blues (repost)

Another year, another cheque to Stevie and the boys to waste in some creative manner. So even though it's a year old, this post still seems relevent, and besides, a) I'm lazy, and b) I'm brain dead after finishing our tax returns for another year.

The only annual event that seems to come around faster than Christmas and the spousal unit's birthday is income tax time, so, as a public service, here's a handy guide to help you through this 'taxing' time.

First, start by procrastinating as long as humanly possible, but not beyond the due date because then you'll owe even more in interest and penalties (like missing the aforementioned spousal unit's birthday). You can ignore this rule if you expect to get a huge whack of cash back in which case do your taxes early. However, in actual fact, you'll probably get your check about the same time regardless because unless it involves sending huge dollops of your money to mega-rich Alberta oil sands companies or Quebec's Bombardier, Inc. the feds truly hate to write checks - even when it is your money coming back to you. It's almost as if, by writing the check, they are admitting guilt for keeping and using your money (for oil sands, Bombardier, et al) all this time without paying so much as a penny of interest on it.

Collect all your documentation in one huge pile. This involves sorting thrtough various other huge piles of paper that have accumulated over the year. Last year you decided to set aside one file folder for tax documents to make the job easier this year. That lasted exactly one month, and now you have tax information all over the place again. Multiply by the number of taxpayers for whom you are completing returns - 1 for the spousal unit, and 1 for each income-earning child up to the age of 30 or until they can find someone else to do their taxes for them. This may or may not coincide with them leaving home.

Buy some tax completion software. I cannot stress this one enough - there is no way the average mortal human can navigate through all the rules and regulations necessary to be able to complete their income tax return without the use of a computer and associated software. Let the pros figure out what's allowable and what's not; what needs to be reported and what doesn't; how the entry of medical expenses affects the deductibility of charitable contributions; etc. You are only going to screw it up if you try to do this manually. You will still screw it up doing it with software, but hopefully not as badly - and it's a lot easier to correct than having to erase a few dozen pages of entries.

Install the software on your computer. You may think this is a no-brainer, but people are getting dumber all the time, just witness the need to warn people not to place their hands in the mouth of an operating snowblower, or to have to tell them to take the plastic off the frozen pizza before putting it in a 450-degree oven. And I won't even mention Paris Hilton. Oops. Consider this a cautionary warning. It will also keep me from being sued.

Now wasn't that a fun way to spend 3 or 4 hours?

The next 3 or 4 hours should be somewhat easier, but just to make sure everything goes smoothly and relatively stress-free, pour yourself a large scotch - previous experience would indicate a tumbler full is about the right amount. And since you spent all morning getting ready, the sun's already passed the yard-arm - at least in Newfoundland - so it's time. If you did the preparation the night before and it's now 7 AM, remember that Europe is 5+ hours ahead, so it's really past noon there, and since this is all their fault in the first place (income taxes were established to fund the war effort in The Great War, aka World War I) it's fitting to start drinking on their clock.

Complete the form by following the simple step-wise approach recommended by the software manufacturer. This is a multi-stage process, the details of which I won't go into here. Suffice it to say that you will frequently find yourself in uncharted territory without the necessary forms and suffocating under an electronic pile of very unhelpful Help information. You will go through this process multiple times until all your T-4, T-4A, T-5, T-2020, Teed-off forms are present and accounted for and all deductions have been properly recorded. And now, according to your $20 software, you owe the government (Bombardier, oil sands, et al) about $5,000.

Refill your glass, because the next step is the creative aspect of income tax reporting and you're going to need all the help you can get.

What you want to do now is 'adjust' your return so that instead of you owing the government $5,000, they owe you money. This is harder to do than you would think, but possible. While large corporations like Bell Canada and Telus can take "tax holidays" where they 'adjust' their books to avoid paying any taxes at all for an extended period of time, the average taxpayer (known in Revenue Canada circles as "the sucker") has much more limited options at their disposal. Look for help from your investment advisor, accountant, and the latest Taxes for Dummies guide. Just stay legal - especially if you don't want to run afoul of the dreaded auditors who like nothing better than to slam the door on any taxpayer who might try to save a couple of hundred bucks by cheating. (Now if you owe several million dollars in unpaid taxes, don't worry about this and be as 'creative' as you want because they know you'll put up a strenuous legal challenge and they don't want all that court time to distract them from their primary mission to catch the small fry, so you'll probably get away with it.) This is also an iterative process during which you will try every reporting option available until you get the best possible result - i.e. a refund owing.

Okay, you're done. It's now seven or eight hours later and if you've been successful you have a completed tax form with a refund owing that you can mail in (postage required + GST!) or file electronically, assuming, of course, Revenue Canada's electronic filing system is functioning again.

Now you can just sit back, relax, and wait for your refund check so you can afford to buy another bottle of scotch, the price of which, ironically, is about 60% tax.

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