Taxes can be complex and most people don't want to deal with them. But unlike some tax pros that try to imply that you need a super-computer to prepare your return correctly, many people have straightforward returns that can easily be prepared yourself using a free or affordable tax software program.
On both sides of the border, the tax agencies are trying to encourage taxpayers with simple returns to do-it-themselves using free tax software programs. It makes sense. If your situation involves one or two slips, your tax return could be a simple data entry exercise. Often times the prior year's return can be used as a reference point and the end result should be similar.
The Canada Revenue Agency has been pushing more and more taxpayers to file online because it is easier to process returns. And they have now linked their My Account service so you can easily download your T slips and other information into a number of tax software programs using CRA's "Auto-fill my Return" feature. You should still double check all your slips against your My Account entries to ensure you have everything -- the CRA may not have a slip that you already do -- but it does make DIY easier.
However, if your situation gets more complicated or you experience major life changes, it may be time to consider using a tax expert to prepare your return. And in most cases, these situations apply to tax returns on both sides of the border.
If you immigrated to the U.S. or Canada during the year, you may want to consult a tax expert on your first tax return. Some of your deductions or credits may need to be pro-rated since you were only in the country for part of the year. Certain accounts and assets may have different tax treatment in your new country so understanding your filing obligations is very important.
You might not be taxed on these holdings but the taxman will be interested and may want you to file additional informational returns. Most of these returns carry large penalties when they are not filed. The same applies if you emigrated from the U.S. or Canada. You need to make sure the appropriate tax agency knows you are no longer in the country. There are also special reporting requirements for accounts and or assets you own when you leave.
Investments can also complicate a return. For example, if you have a rental property and sold it in 2016, you may want to consult a tax professional. Not only will you need to calculate capital gains on the property but you may be able to claim any capital expenses that you incurred as owner or you may need to recapture prior year deductions. If you rented out a part of your principal residence and sold it in 2016, you need to ensure that you qualify for the principle residence exemption.
For investments such as mutual funds, ETFs, stocks and bonds, they can become more complicated if you have holdings outside your country of residence. If you have purchased, closed or sold investments in another country, using foreign currencies and avoiding being double taxed complicate your tax situation. If you hold mutual funds or retirement accounts outside the country, they may be considered foreign trusts and require additional reporting.
Business owners may find they have customers on both sides of the border. This would also apply to freelancers who have cross-border clients. While it is great for business, having income in the U.S. and Canada can complicate your tax situation and you may need to file a return in both countries.
Non-resident returns can also be more complex since determining your residency status and filing obligations can be very confusing. Non-resident returns are not calculated the same way as standard resident returns. For example, deductions and credits are very limited and some of the usual amounts you are used to claiming are not available.
Unless you have had a major life change during the year, your tax situation usually does not change very much. If you have a simple return, find a free tax software program and file yourself. It is getting easier every year. But when your situation becomes more complicated, it may make sense to consult with someone with experience.
If you do go it alone, make sure you keep all your documentation and receipts. There are also guides on both the IRS and CRA sites to help. And no matter how you file your return, make sure you meet the appropriate deadlines.
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