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Should I Outѕоurсe My Small Business Aссоunting аnd Tаx Filingѕ?

Tоdау lеt’ѕ tаlk a littlе mоrе аbоut bеѕt business рrасtiсеѕ – specifically, twо thingѕ that саn bе a rеаl сhоrе: small business accounting аnd taxes.  Likе it оr nоt, accounting and tаxеѕ аrе a vitаl part оf your small business. Thus, it’ѕ сritiсаl thаt thеу bе hаndlеd соrrесtlу.  Whеn уоur buѕinеѕѕ rеасhеѕ a сеrtаin ѕizе, you may decide tо hаndlе thеѕе funсtiоnѕ in hоuѕе, but fоr mоѕt ѕtаrtuрѕ, it makes mоrе ѕеnѕе to оutѕоurсе your small business accounting and tаx filingѕ.

Time is Money

Unless you hаvе аn accounting оr tax bасkgrоund, you’ll likеlу ѕреnd far tоо much timе in “do-it-yourself” mоdе.  That’s time уоu could have ѕреnt marketing your buѕinеѕѕ аnd ѕеrving your customers inѕtеаd.  Thus, in most саѕеѕ, it’ѕ probably cheaper for уоu tо hire аn еxреrt thаn it is tо ѕtrugglе thrоugh it уоurѕеlf.

For example, lеt’ѕ ѕау уоu’rе a grарhiс designer who charges $75 реr hour.  Yоu соuld еаѕilу wаѕtе fоur or five hours оf уоur own timе оn ассоunting tasks that wоuld tаkе a рrоfеѕѕiоnаl аn hоur tо dо.  Yоu соuld hаvе earned $300 in thаt time frame.  Inѕtеаd of dоing it уоurѕеlf, уоu соuld hаvе раid a pro half оf that or lеѕѕ to gеt thе ассоunting dоnе fоr you.

In sum, nо one likеѕ to ѕреnd money on whаt seems likе ѕuсh a waste of gооd profits.   Small business accounting аnd tax рrераrаtiоn аrе twо аrеаѕ thаt dоn’t еxасtlу ѕсrеаm “luxury!” However, thе ѕаvvу еntrерrеnеur knоwѕ this iѕ indееd аn аrеа where mоnеу is wеll ѕреnt.

Cоmрlеxitу Invitеѕ Cоѕtlу Miѕtаkеѕ

Tаx lаwѕ аrе complex.  You соuld gеt into trouble if you inсоrrесtlу prepare аnd filе уоur tаxеѕ оn уоur оwn, withоut thе help оf a рrоfеѕѕiоnаl. A tax professional not only knоwѕ the inѕ аnd оutѕ оf fеdеrаl tаx law but hе оr she is аlѕо uр to speed оn the uniԛuе lаwѕ that аррlу to thе province аnd lосаlitу where уоu dо business.

Hiring a рrоfеѕѕiоnаl will give уоu the реасе оf mind that your ассоunting and tаx filingѕ hаvе bееn dоnе соrrесtlу.  In fасt, the confident ассоunting firmѕ will guаrаntее thеir wоrk.  That iѕ, if you’re еvеr аuditеd, they’ll bе there to wаlk with you through еvеrу ѕtер оf thе аuditing рrосеѕѕ.  In most саѕеѕ, уоur ассоunting firms саn еvеn ѕреаk with thе аuditоr оn уоur bеhаlf.

Keep Mоrе Mоnеу In Your Pocket

Hiring a рrоfеѕѕiоnаl for ассоunting аnd tax filing can actually ѕаvе you money.  Whеn уоu hirе an accountant оr bookkeeper, thеу’rе wоrking for уоu.  They’re running a buѕinеѕѕ juѕt likе уоu are, аnd thеу wаnt tо mаkе уоu a happy сuѕtоmеr.  More specifically, some tаx and ассоunting рrоfеѕѕiоnаlѕ even go out of thеir wау to find you every dеduсtiоn possible, аnd offer tiрѕ аnd ѕресiаl wауѕ tо ѕаvе your buѕinеѕѕ money.  If your’s isn’t….get a new one.  Thеу tаkе continuing education сlаѕѕеѕ tо kеер abreast of the lаtеѕt сhаngеѕ in thе tаx соdе. Bе honest – would you tаkе thе timе to dо thiѕ each уеаr? The fees you pay fоr tax preparation саn end uр saving your buѕinеѕѕ thоuѕаndѕ оf dоllаrѕ every year.

Chооѕе With Care

Whеn уоu оutѕоurсе bookkeeping аnd tаxеѕ, уоu’ll be rеvеаling private finаnсiаl infоrmаtiоn аbоut уоur buѕinеѕѕ tо аnоthеr party.  Therefore it wоuld bе wiѕе tо dо some research firѕt.  Gеt rесоmmеndаtiоnѕ, аnd don’t gеt just оnе.  Aѕk аrоund.  Depending оn уоur linе of buѕinеѕѕ, thеrе mау bе a tax professional thаt specializes in уоur аrеа, ѕо don’t be ѕhу about аѕking.

Dо your rеѕеаrсh wеll, аnd mаkе ѕurе thаt уоu’rе wоrking with ѕоmеоnе of good сhаrасtеr. Intеrviеw a few ассоuntаntѕ оr bookkeepers until you find thе best fit for уоu аnd уоur buѕinеѕѕ.  Yоu wаnt someone you саn rеаllу truѕt.  Always аѕk fоr rеfеrеnсеѕ – аnd сhесk thеm.  Yоu want tо сhооѕе a firm (оr an individuаl) with роѕitivе customer satisfaction rаtingѕ.  Furthermore, if уоu gо with a lаrgе ассоunting firm, уоu’ll wаnt tо еnѕurе that уоu wоn’t bе treated аѕ “juѕt a numbеr.”  Actually, ѕit dоwn and mееt with thе реrѕоn whо will bе аѕѕignеd tо уоur buѕinеѕѕ ассоuntѕ.

A final word of саutiоn: ѕоmе CPAѕ and ассоunting firms mау not hаvе еxреrtiѕе in аll thе areas уоu nееd.  Sоmе ѕеrviсеѕ mау come with аn еxtrа сhаrgе.  Hence, be sure to aѕk ahead of time fоr a full, writtеn explanation of еxасtlу what services аrе included and thоѕе thаt аrе nоt inсludеd.  It wоuld bе wiѕе to hаvе еvеrуthing ѕреllеd out in a service contract so that there are no unexpected surprises whеn the bill arrives.

Interested to see if UpSide Accounting is the right fit for your small business accounting? Contact us today at (226) 214-3233 and we will happily see how we can help you!

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Being audited? Don’t panic!

If you receive notice of an audit from the Canada Revenue Agency (CRA), the first thing you need to do is stay calm. The reason your account was flagged could be something as simple as you significantly increased your charitable donations last year. It could also be merely the fact that you are a new business owner. Instead of conjuring doom and gloom, consider an audit to be and ordinary part of business. You’ve already got all the documentation readily available – it’s what your accountant used to complete your tax file, to begin with, after all.

Benefits of an Audit

Your audit is a learning experience. The CRA representative will point out what you’ve done wrong before it gets out of hand, potentially saving you from severe fines and future audits. And you may not have done anything wrong! It’s as likely you’re being audited because yours is a new business. Tax files are delivered electronically now, without receipts or supporting documents. As a result, sometimes the CRA just wants to go on more than the honour system. You may even learn about additional benefits you’re eligible for that you aren’t taking advantage of.

What to Expect

Expect to receive the notice in writing, allowing you to mop the sweat from your brow in relative privacy. Once the initial shock wears off, the first thing you should do is call your accountant. Your accountant can join your audit team and may liaise with the CRA on your behalf, as well as be present during the in-person portion of your audit. This may cost an additional fee, but it’s a worthwhile service because not only do they speak the lingo, they’ve done this before. An audit should be taken seriously, but no need to lose sleep over it.

The key to getting your audit off to a good start is to respond to the CRA’s request promptly. This is the kind of unexpected situation that you make time for now. Your notice will outline the reason for your audit, what documents you need to prepare, and who to contact to book your appointment. Your appointment will likely take place in your office. This allows the convenience of easy access to all of your documentation in case you forget something or the auditor requests additional documentation. The length of the appointment is unique to the size of the business and the documents required for review. You may be required to produce documents ahead of time, or the auditor may take some with them for additional review after the appointment. Don’t stress, this is all normal!

Final Outcome

Once your audit is complete you will receive a letter outlining the final outcome, whether you owe additional taxes or are owed a refund, and how to proceed. At this point, you still have the opportunity to appeal the decision or to provide additional documentation. You may also talk to your auditor for more information to be sure your bookkeeping and claims are on point going forward.

Audits are a hassle, but they don’t have to be a nightmare. Do it right the first time! Upside Accounting provides bookkeeping and business consulting in addition to tax preparation and audit assistance. To book an appointment call (226) 214-3233.

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Tax time!

It never fails to sneak up on you: Tax time! Whether it’s your personal taxes in the spring or your corporate fiscal year end, getting your books together is a hassle. Follow our guide below to stay on track and make your tax filing as smooth as possible.

First, your accountant needs your business.

The first thing your accountant needs from you is an appointment. By mid-February, you should have already contacted your accountant to be sure they can process your file this year. If they can’t, you’re going to need that lead time to find a new one. Accountants do all the same things regular people do like get sick, sell the business, and retire. This is why it’s prudent to check-in with yours and make sure you’re both on track for this year’s file.

Second, your accountant needs you to reconcile your books.

Since you have already contacted your accountant (right?!), they have provided you a Profits & Loss form (P&L) or given you instructions on how to give them access to your cloud bookkeeping platform. Bonus Tip: If they haven’t, look for a new accountant! In both instances you need to have entered into either the P&L or your cloud file:

  • Invoices – whether paid or unpaid, if you issued an invoice in the tax filing calendar year, they go in the tax file.
  • Pay stubs – if you pay yourself a salary or you pay additional staff, all of that has to be included.
  • Receipts and bills – every receipt that pertains to your business goes into the file, including but not limited to: office supplies, machinery, property, vehicles, gas, meals, internet, cell phones, marketing expenses, travel expenses – if you pay for it and use it for work, add it to the pile.
  • Kilometres – If you claim the use of your car for business use, you need to include the number of kilometres you traveled for work.

 

If you are a Sole Proprietor you also include receipts from medical care not covered by insurance, any donation receipts, investment income statements, property purchases, and everything else you would include on a personal tax return. Because this IS your personal tax return.

Incorporations need to include any shareholder transactions (investments and withdrawals), HST payments, HST claims, dividends, bank statements, and all of your bookkeeping records.

Bonus tip: Make your tax filing easier still with cloud accounting. Just enter in your information into the database as it comes throughout the year then grant your accountant access to prepare your file.  OR, even easier, subscribe to a digital filing cabinet like Hubdoc and let the pros do the rest.

Finally, your accountant needs a little bit of your time.

Your accountant will likely need at least an hour of your time, divided up, to sign releases, fix bookkeeping errors, plan for the year coming and the like. Factor travel time on your part into that.

Your accountant may seem like a superhero, but at the end of the day they are mortals just like you, so you won’t be able to deliver your tax file to them the day it’s due and meet your deadline. But you called ahead and got a realistic timeline from them a month ago, right? Be realistic about the timing, start reconciling early, and tax time will become routine instead of a hassle.

Ready to find out what the fuss is about cloud accounting? Call UpSide Accounting from anywhere in Canada to get steered in the right direction by calling (226) 214-3233.

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To Buy or Not To Buy?

As your fiscal year-end nears – and for a lot of our clients that momentous date is December 31st – you should be thinking about your bookkeeping and taxes. This can be especially tricky when your fiscal year-end aligns with the calendar year-end. It’s tricky because you also have to balance the holidays, vacation schedules, and your increased orders if your customers rely on you at gift-giving time. Pre-planning for your fiscal year-end could provide you with huge savings immediately at tax time. Thus, persevere to take a look at your books. In particular, consider what depreciable property you could purchase now that will allow you to benefit from capital cost allowance (CCA) ASAP?

Assets, Defined

Allow us to explain. When you hear the word “depreciable property” or “assets” it’s not unusual to immediately think about big machinery. Whereas, us accountants and business counselors want you to think of assets as any kind of machinery, equipment, furniture, fixtures, or other need-or-nice-to-have items that cost upwards of $500 with a life expectancy greater than 1 year. Think machinery, but not just of the assembly line variety; include equipment you use for packaging, mailing and administration. Think about laptops, desktops, tablets, cell phones, scales, mixers, labeling machines, cars, desks, exterior signs, trade show displays, buildings, and commercial property. Your coffee machine might even qualify if you’re fancy like that.  

When to Buy

The burning question that keeps a depreciable asset on your year-end shopping list is whether to buy now or next year. There are pros and cons to both. Although, we tend to advise you towards now because you’ll receive a tax deduction sooner rather than later. While you get to spread the deduction out over multiple years (yay!), that first year is always considered a half-year (rats!). This is because the CRA figures you didn’t benefit from your new toy for that whole year. No matter what part of your fiscal year you purchase an asset in, you only get half of the deductible in Year 1. This is why it’s hugely beneficial to make that purchase at the close of your fiscal year rather than the start.

An Example

Let’s pretend you’re buying a laptop:

Let’s say the laptop is purchased for $749.99 before tax. You receive a 55% deductible for computer hardware.

Year 1 deductible comes to $206.25, which makes the book value of the laptop in Year 2 $543.74.

Year 2 deductible comes to $299.06 which makes the book value of the laptop in Year 3 $244.68.

In the first 2 years, you have that laptop, you’ll get $505.26 back in tax deductions. Every asset is categorized with different rates, but the general deductible range is 4%-55%. Lower percentages are applied to the highest-priced assets, like buildings, so your deductible is still beneficial.

Bonus tip: You don’t have to claim your CCA every year. If you don’t owe taxes this year, you may not want to claim the CCA and carry it forward for next year. It pays to plan ahead!

There are other ways you can use asset purchases to your benefit, and these may influence your decision to buy now or buy later. Contact Upside Accounting at (226)-214-3233 and find out what else you should be thinking of as your fiscal year winds down.

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Why Should I Care About Sole Proprietorship vs. Incorporation?

When you start your own business in Canada it’s easy to get overwhelmed with paperwork and protocol, especially when you’re a staff of 2 and you’re mopping your own bathroom floor. One of the decisions you’ll have to make ASAP is whether to strike out as a sole proprietor or incorporation. Unfortunately, you don’t even know what that means. We can help you with that!

The terms Sole Proprietorship and Incorporation refer to ownership. The government gives you 4 options to choose from when declaring to the Canada Revenue Agency (CRA) who is responsible for your business. However, as a small business owner you really only have to worry about the first two (the others are Partnership and Co-operative).

Sole Proprietorship

If you are the sole proprietor of your business, then you own it all. If this were Middle-earth you’d be wearing that one ring. You file 1 tax return because your business taxes ARE your personal taxes. You don’t have to sign legal documents to declare yourself (aside from your tax file). There are few formalities and all the power.

Entrepreneurs who choose to go the sole proprietorship route experience unique benefits. These include, zero incorporation fees, an instant start date, and total control. The only people you report to are your clients and the CRA (and the law, of course).

The downside of a sole proprietorship links directly with the benefits. You are entirely responsible for the business. That includes incurred debt and lawsuits that may come your way via creditors or clients. You also may end up paying more in taxes if your revenue puts your income into a higher bracket.

Choosing to run as a sole proprietorship depends on what your business is. If yours is a low-risk, not-pouring-all-my-life-savings-into-launching kind of service, then you might feel comfortable operating solo. Artists, designers, writers, and similar freelancers typically begin as sole proprietors and stay that way until they get burned. Or rather, they earn enough revenue to use incorporation as a taxable advantage.

Incorporation

By incorporating your business you are registering as a company with the Canadian government which opens doors for you both financially and legally. As soon as the ink is dry on the paperwork, your life savings are protected from lawsuits and debt incurred by your company (with a few exceptions). You can also apply for corporate loans and grants. Although your taxes become more complicated, your personal taxes won’t be as…well, taxed.

Incorporation costs between $800 and $2800, which includes paying government fees, as well as the optional fees for the accountants and lawyers to help assist with the filing (like Upside Accounting!). It does not include additional fees you may pay to file your taxes every year, the bookkeeper you may want to hire, etc. Incorporating after you’ve run as a sole proprietor will likely cost you a little more, but can be done.

The decision to choose between sole proprietorship and incorporation lies with you. We have now outlined the basic differences between the two. This is information is meant to inform you on the concepts to help you know you have options and what they consist of. On top of that, now if a buddy at the next BBQ you go to starts talking about it you’ve got a clue!

For more detailed information on sole proprietorship and incorporation and how they apply specifically to you, get in touch by calling Upside Accounting at 226-214-3233 or contact us here.