Tax time is no fun. I think most people would rather go to the dentist than file their taxes. Fortunately, in this modern era where tax preparation software does much of the work, filing taxes isn’t as painful as it used to be. I’m going to make a case for doing a little extra work at tax time that can lead to a larger refund now or in the future.
Many tax deductions have an income test. This means that if you earn too much, you get no benefit from the deduction. Two examples of this are deductions for property tax paid and medical expenses. There are many others.
Taxpayers who enter expenses year after year only to find that they don’t make any difference to their refund or taxes owed can be forgiven for not seeing the point of the extra work. Eventually, some decide not to bother entering the deductions any more. This can be a mistake.
I was helping a family member file his taxes recently and came across this situation with property taxes. He hadn’t bothered to enter property tax information because “it never makes a difference.” But, it turned out that a change in his situation for 2010 resulted in the property taxes making a substantial difference.
Even if these expenses don’t make a difference right now, this may change if your return gets reassessed. The change that causes the reassessment might result in some expense making a difference when it hadn’t before.
It is fairly painless to enter information into tax software and it may be worthwhile even if you feel sure that the information won’t make a difference.
@CC: Agreed. That's why I enter all information even if it probably isn't going to affect the bottom line on my return.
ReplyDeleteThe comment above is a reply to Canadian Capitalist's comment:
DeleteNot to mention, these rules are being tweaked all the time. So, just because a credit or deduction wasn't available last year doesn't mean it's not available this year. It's a pain to keep up changes to the tax code but that goes with the territory of DIYing your taxes.
The thing that gets me is whether to include interest from bank accounts. Sometimes it's $0.06 or $1.32. There's an account my wife has that I can't find the paperwork for. I'm debating whether to just claim a conservatively large amount or ignore it.
ReplyDelete@Gene: The small interest amounts can be an annoyance. At some point it doesn't make sense to spend time tracking down information that changes tax owing by only a dollar or two.
ReplyDeleteI live in BC, I just did our income tax using ufile. I did not see this property tax deduction ? is this applicable to BC or just a certain province ?
ReplyDelete@Anonymous: When I wrote the post I checked 4 provinces and all had a property tax credit, but according to a few comments I found online, BC doesn't seem to have such a credit. I'd suggest looking for a more definitive source.
ReplyDeleteIt is fairly painless indeed. I always do it. It only takes a couple extra minutes.
ReplyDeleteWe always enter medical expenses and we enter each slip rather than the total for the year. This let's us optimize for the 12 month period which isn't always the calendar year. Also for seniors we enter them since in the year you die you can claim 2 years of medical expenses and by entering them we always have the prior year to carry over automatically.
ReplyDeleteDarn, Michael, when I clicked over I was somehow hoping this post would be about legally putting gibberish on your tax return just to mess with The Powers That Be.
ReplyDeleteThen again, maybe you guys can get away with that sort of stuff up there in the Great White North...