The Income Tax Act is A HUGE act. At its core, it stipulates that what you claim on your business taxes must be reasonable.
Also, that you are responsible for being honest with your submissions, and that by claiming deductions, you not only understand why they are reasonable, but can prove them to be so through supporting documentation and receipts.
Disclaimer: this article pertains to business tax returns. For personal tax, software programs tend to be okay- because there aren’t as many variables, such as how things are claimed as write-offs, and the types of expenses you have. Business tax returns are more complex and are also more open to interpretation than most personal tax situations. Additionally, this article does not refer to any one tax software program or online service, nor does it seek to discredit or devalue them, but to merely help entrepreneurs make informed decisions about their tax return options.
#5: Tax software programs cannot determine what is reasonable.
A program relies on the information you provide. This goes both ways: accepting incorrect information without question, and the inability to advise you of deductions you’ve missed.
If you claim something as a business expense that doesn’t actually qualify as a deduction- or write off a full amount when you’re only entitled to a percentage- the program is unlikely to advise you differently.
It simply crunches the numbers. This could potentially lead to a CRA audit or penalties down the line.
#4: Tax software programs cannot interpret receipts.
Take food expenses, for example. It may ask you if you have receipts for food purchased through the year.
You answer yes. But the reality is there are many different ways for you to write off business food expenses.
The software can’t evaluate your specific business situation.
Typically, they’re programmed with the most common approach, a basic standard.
There are different tax benefits depending on how food items are claimed, so you may not be getting the most out of your return.
Another example is making sure your vehicle is properly written off.
Again, there are several ways to write off your vehicle, and unless you understand the best way for your situation, you may not be getting the best write off.
The online program may ask about your vehicle, its price, and fuel consumption in the course of the business year.
While it will give you the best write-off it possibly can, this does not mean it’s the best write off there is.
#3: Tax software programs may not be so user friendly.
Something else to consider- and this is not so much a problem with the software itself – is the user experience.
What will you do if, during the process, you encounter a question or a field you don’t know how to complete?
Does the software provide live support for your questions, and will it be adequate? How are the call wait times?
Will you just guesstimate the figures, or perhaps just skip that one tricky receipt?
In other words, while programs may seem like easy, economic solutions, the money you save on the program vs. an accountant could actually cost you money on your return.
And with a professional tax preparer, they do the work for you – so even if you don’t fully understand how to calculate tricky deduction, you don’t have to miss out.
#2: Tax software programs = one size fits most.
When you get a professional tax preparer to do your taxes, you also get their knowledge, skills, years of expertise, and ongoing learning about changes in tax laws.
Professionals ask important questions that are appropriate to your business.
A tax software program writes questions that are generic enough to apply to every business.
If you have a side business walking dogs, you’ll have the same set of questions as someone in construction.
Businesses have different needs, requirements, and sometimes even CRA obligations.
#1: Tax software programs cannot discuss your tax return with you.
So, what happens if you use a program anyway?
When you enter all your information into the program and it churns out the resulting tax your business owes, you have no way of knowing if this is a good number or bad.
Whether you could have done something differently, thus changing the outcome and, therefore, would be paying less tax.
You could try asking it, but – spoiler alert – it’s not likely to answer you. (Arguably, it would be really creepy if it did!)
Calling customer support is a possibility, but can you expect them to go over everything with you, and how do you know if the call center agent is qualified to assess your situation and give the best answer?
Nothing beats the power of communication.
Remember my golden truth: If you take your taxes to 5 different accountants, you will get 5 different returns.
That’s true. Professional tax preparers and accountants know all those possible interpretations.
Where the software goes with its programmed options, the human equivalent will likely choose the one that seems most appropriate.
However, you do have the ability to ask questions, review your documents, and provide more information about your business BEFORE handing over your taxes and AFTER they’re done.
The sit-down you have with your accountant or tax preparer when you take your books in can be invaluable.
It is perhaps the most important thing that software can’t provide.
Still not sure? You can always challenge yourself by preparing a return via software (but not filing it, of course) before taking your taxes to a professional, to determine if it will make a difference for you.
If looking after your own books is important to you, or you’d like to up your game by learning how to track your expenses and manage your business expenses like a boss, I have courses for that. Check out E-School and even more resources on my website.