It’s now the time of year I need to scramble to get my tax info to my accountant.
The last few years doing taxes has been an exciting prospect. I had a regular job with taxes removed each time, and I had more expenses than revenue with the side hustle. I’ve been facing returns of 1500$-2000$ and it’s been lovely.
This year all my money is coming in as a contractor.
That means the money comes in full upfront and then gets figured out with the taxman later. No matter how we slice it, there will be a bill coming. Even with all the write offs and different reported expenses, there will be a balance due rather than the lovely refund version.
The thing I’m most grateful for is that I have someone trusted to do my taxes for me and I don’t need to follow tax law changes each year.
Your revenue minus your expenses determines taxes owed
Doing your taxes is the time wasting activity of reporting to the government how much money you made, taking into account special government approved income modifiers.
For most jobs, you will be taxed every pay cheque before you get your money. Given the amount taken is correct, at the end of the year when you do your taxes everything should balance out at 0. You can think of this as the basic version without any additional factors.
Over the course of the year you’ll likely spend your money and where that money goes may affect your taxes.
Certain things like charitable donations, RRSP contributions or business expenses will lower the “amount of money you made”. You still made what you made, but the government decided that you can give money to charity and that money won’t count as income anymore.
If you made 50’000$ in a year, but then gave 1000$ to charity, the government will see it like you made 49’000$ instead.
Because of that modification, the amount you got taxed on throughout the year will end up being too high, resulting in the government giving you money back (when it’s too low you owe them money). That is the ideal. It does get a little confusing because what counts as expenses, and any appropriate limits, may change.
The basic version of taxes is a single person with no kids, taxes do get more complicated.
Your tax reality is based on your personal life experiences
The game of taxes is one of knowledge based on your own unique life profile.
Doing your taxes when you are employed by one company the entire year is different than when you freelance hustle money from multiple sources. Having kids and getting married (including common-law) also change things up. Each relevant box you check comes with new rules.
As a freelancer I have certain expenses that are necessary to get paid.
Sometimes it costs money to make money. I need to pay for gas to drive people who do Uber. An internet connection, computer and office space is required for my other gig. Since my office is at home, in a closed room, the home office calculations are different from home offices in a living room.
Some of my income is royalties from American companies. While music is covered in a tax treaty between Canada and the States, some American income can face even more taxation.
We all have different wealth, so capital gains are also unique factors to be taken into consideration.
The main thing is that there isn’t a one size fits all approach to taxes. At a base level it’s revenue minus expenses determines tax to be paid. In reality it’s a really personal experience where a lot of factors need to be taken into consideration.
Once you figure out everything you need to care about, you’ll need to double check it all next year since a bunch is subject to change.
The expenses that count change every year
When I was in high school, you could declare your bus pass as an expense.
Then all of a sudden it was only one government that let me declare bus passes as an expense. Now this made an impact. One year I owed the government 100$ and after adjusting for my bus pass they gave me back 80$ instead. But at some point not too many years later bus passes were just no longer expenses you could write off.
Every year both the provincial and federal government switch up the specific nuances of how taxes will work that year.
The simpler your tax profile is, the less this will impact you. However if you are trying to really cake up in life, you’ll want to talk with a financial advisor to make sure you are in fact getting the most back (or paying the least) you can. If you value your time, getting an accountant to do this for you will be a great use of your money.
The information is all there. You can go through each form and double check everything. If you are good at following directions this may be really easy for you. In fact knowing how to do basic taxes could turn into a cash based side hustle. My mom used to make big money doing that.
You just need to stay up to date and check everything yearly.
Teaching taxes in school by itself feels like a waste
I remember for years hearing about how bad our education system was because they never taught us how to do taxes. I grew up poor, our tax reality was really different than a lot of people in class. Some people grew up rich and their parents use complicated tax shelters to hide money. It becomes weird to figure out how to teach anyone to fill out tax forms without sharing some very confidential information.
I think most people really want financial literacy to be taught in school when they mention taxes.
Teaching financial literacy, including a very top level look at taxes and their function in society is useful. Teaching a bunch of 17 year olds to do their taxes before they have jobs feels kind of aimless. A lot of what they will learn will not really apply to their future selves when they go sit down with a Turbo Tax.
Yes you can cover the process with a few generic examples in a week and move on.
Then people will graduate, live lives and need to still double check their circumstances against current tax law. This process got so complicated and time consuming there’s a whole occupation that deals with it. They are called accountants. These are professionals whose money relies on knowing income tax law and all its quirky characteristics.
If I were to teach a tax course it’d be real simple, go on TurboTax and if it’s too hard, hire an accountant.
Live Long and Prosper Everyone