The final deadline to file your taxes is quickly approaching, and our new regular contributor, Sarah, is here to share her experience filing her taxes for the first time.

Sarah graduated from the Wilfrid Laurier University business program with a concentration in Finance in 2018. She now works as an Investment Representative in the financial planning industry. Alongside Financial Advisors, she helps manage the money of clients. Through her own experiences, Sarah writes about things pertaining to recent grads, women in finance, and overall health and wellness.

Feel free to say hello and leave a comment or question for Sarah, welcoming her to the Mixed Up Money fam!

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As a 23-year-old young adult, I’m slowly taking on more responsibility when it comes to my finances. Among a variety of things, this has included filing my taxes for the first time. Before this year, the idea of filing on my own brought up a lot of self-doubt and confusion. Through my 16 years of education I realized I had more knowledge on the different angles of the triangle than I did of a task that is asked of me every year. After speaking with some of my friends, I knew I was not alone in my questions and misunderstandings, and neither are you if you feel the same. Now that I’ve successfully come out the other side, I’m going to help guide your expectations and make filing seem less daunting because nothing is certain in life except death and taxes. 

What does it mean to ‘file your tax return?’ 

First, we need to step back and get to the basics, like what filing your tax return even means. A misconception you may have is that filing your taxes means paying your taxes for the year. Although this seems logical, it is incorrect. You have been paying taxes all year, whether you knew it or not, with your employer deducting a portion of every paycheck for government taxes and programs such as the Canada Pension Plan (CPP) and Employment Insurance (EI).  

It’s as if you signed up for a free trial of Spotify premium a year ago, the free trial ended, and you have been getting charged a hefty fee every month without realizing. Brutal, I know. This system is beneficial for the government since it receives a steady flow of income throughout the year and a tiny bit more (since benefits to individuals often go unclaimed).  

Filing your taxes entails a comparison of differences — between what you’ve already paid this year in taxes and what you should have paid based on calculations. The difference will either be more money owed or more often for young adults, a refund back to you. Therefore, filing your taxes should be done every year and on time, or you risk additional fees. Although there are amazing programs like TurboTax that do the calculations for you, I feel it’s important to understand the basics of how you calculate your taxes to be sure you are getting the money back you deserve.  

What information do you need to file your taxes? 

The process of filing your taxes starts with finding out how much money you made this year. Employers should issue T4 slips to you for all jobs you held throughout the year. To calculate your total income, sum up all T4 slips in addition to other forms of income you may have had during the period such as EI, certain benefits, and self-employment income.  

From there, the next step is to calculate your taxable income. Did you know that not all income is taxable? This is important to differentiate because certain allowances or non-taxable income will reduce your taxes and may put you in a lower tax bracket. As an incentive to save for retirement, the government has made RRSP contributions as non-taxable. You can find a full list of non-taxable income on the Canada Revenue Agency (CRA) website.  

Once you have calculated your taxable income (earnings minus deductions), federal and provincial tax rates are applied in a tiered system to calculate the taxes you owe. These tiers or “brackets” consist of paying a certain rate on the first approximately $50,000 you owe, paying a higher rate on the next approximate $50,000 you owe, and so on. You can see that with this system, higher-income individuals get taxed at a higher average rate than lower-income individuals.  

The final step of the calculation is considering benefits or tax credits. A tax credit is an amount of money that can be offset against a tax liability and can serve to encourage or reward certain behaviour from the government. You may have noticed the new Climate Action Incentive credit, which was introduced to support the environment if you live in Manitoba, Alberta, Saskatchewan, or Ontario.  

Tax credits come in two forms – refundable and non-refundable. A non-refundable tax credit will only reduce your tax liability to zero; however, a refundable tax credit can provide money back if your tax liability is already reduced to zero. Visit the CRA website for a full list of refundable and non-refundable tax credits available in your province.   

Once you have totalled your tax credits, subtract them from your previously calculated tax liability to get to your final numbers. If you owe taxes, it’s a positive result. If you are due to receive a refund, it will appear as a negative amount.  

What are your options to file your taxes? 

There are many online programs that allow you to file your taxes, such as SimpleTax or H&R Block. Personally, I set up an account with TurboTax and found the software very user-friendly and, most importantly, free.  

These programs can sync seamlessly with your CRA account, and you can file from there. Since the information is pulled from your CRA account, it’s important to log in and make sure that everything is up-to-date, such as your email, mailing address, and direct deposit information. That is how you will receive a refund (if you receive one, that is). If you’re like me and the idea of remembering a password every year is daunting, a nice feature is that you’re able to login using your banking information.  

This year, the date to file is June 1st, 2020, and the date to pay any amounts owed is September 1st, 2020 and can be done online. If you have a tax refund, you should receive it within two weeks if you file online, and eight weeks when you file a paper return.  

How was my experience filing my taxes? 

Overall, I would say that my first filing season went smoothly. If you’re anything like me, your expectations are a lot worse than the reality. You don’t have to be a seasoned CPA to file on your own. Plus, if you’ve already passed up on the opportunity this year, maybe this is the encouragement you need for next year, and the perfect chance to give your poor parents a break.