For years, I’ve been a fan of doing my taxes myself. It started when I was a poor student, and low-cost tax software was the only way I could afford to file. Once I started my first job, my taxes were fairly straight forward, and continuing to file myself was easy. Finally, as a freelancer, filing my taxes has become a little more complicated, but I learned everything I needed to know to file them myself, and since I am very familiar with my tax software, it has been a breeze.
Last year, however, everything changed. On a whim, I decided to use different tax software. This software was highly regarded and well known, and I wanted to see if it was better than the software I’d been using. The grass is always greener, right?
I’d prepared everything I needed to file my taxes online. I had my income from my full-time job, my retirement contributions and all of my income and expenses from freelancing, right down to the last coffee receipt. I poured myself a glass of red wine one evening, gathered my documents and started typing away on this new software.
I entered my income, my husband’s income and our retirement contributions without an issue, but when it came time to enter my business income and expenses, that’s where it got dicey. In Canada, if you use part of your home as an office for your business, you can claim a percentage of your housing costs as a business expense. I freelance and have a home office, so I claim part of my housing costs. It’s tedious because it involves tallying up a bunch of bills every year, but the savings are worth it.
On the old tax software, the percentage you claim is the percentage of your home office’s square footage relative to the total square footage. On the new tax software, the question is inverted. So instead of claiming 7 percent of my housing costs as home office expenses, I claimed 93 percent.
That is a huge mistake and one that I was totally oblivious to. I finished up my filing, saw the final number and I was happy. Since I had thousands in eligible housing costs, this caused my tax bill to shrink, resulting in a small tax bill. I thought I was done and started the process to initiate filing.
I was about to commit tax fraud, and I had no idea.
Fortunately, I also wanted to try out this software’s optional add-on to hire a tax professional to look over my return before I filed it. I scheduled an appointment with a tax pro and called it a night. On the day of my appointment, I met my tax pro over the phone. Her name was Cathy, and she saved my butt. Cathy went through my return with me line by line, and she caught my mistake. To this day, I can’t thank Cathy enough for stopping me before I committed tax fraud.
Unfortunately, this meant that I was only claiming 7 percent of my housing costs, which meant my profit for the year was higher, which meant I was now facing a big tax bill — over $4,000 to be exact. While I’d saved 30 percent of my income from the beginning, it was still a shock to see that number. That said, it would’ve been an even bigger shock to get audited and find out that I hadn’t been totally honest on my taxes.
Do You Know? 12 Tax-Filing Mistakes First-Timers Always Make
All in all, I’d use the software again, but I’d make sure to have a tax pro look over my return the next time. Because you never know when you’re going to make a mistake. A tax pro can really save the day.
Click through to read about tax mistakes everyone makes.
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