Ask an accountant: Volume 1
Nothing kills the buzz of your new side hustle/freelance career/small business quite like tax season. One minute you’re following your passion, the next minute you’re using your 1099 form to dry your tears. At times like these, an accountant can give you the guidance you need to get back on track.
That’s why we sat down with Adam Singer CPA (CA), CFE, a chartered accountant, co-founder of Singer Steinberg Professional Corp, and writer at There's No Crying in Finan¢e. In our Ask an Accountant series, Adam shares his wisdom about tax preparation, financial planning, and anything else small businesses and self-employed professionals need to know.
1. To start, how do I know if I need an accountant? What can they help me with?
If accounting and filing taxes isn’t your strength or your core business, you probably need one!
That said, you should also consider your budget and the cost/benefit. An accountant will generally save you more time and money if you start working with one earlier in the life of your business. Sometimes it can seem like the cost of an accountant outweighs the benefit, so you may want to take the leap of faith and source one for a year to see if the value is there.
Your accountant generally will help you plan to minimize tax, guide you on when to incorporate, and help with compliance things like HST, Payroll Tax, and Annual Assessments. These can cost a lot of money in interest and penalties if they're not dealt with properly.
2. When do I need to start preparing my taxes?
In true form, most people plan for tax season right as their year-end comes around. For self-employed people that's December 31st, and for small business that's the year-end date that was selected.
But in general, we encourage people to plan all year. If you’re working with an accountant, do periodic check ins… and of course, save and organize your receipts as you go!
3. What actually happens when I get audited and how can I protect myself?
If you get audited, the CRA will ask you for copies of your invoices that you billed to clients as well as copies of the receipts that you claimed as expenses. If you’re well organized and stored your receipts, you’ll be fine. If you haven’t kept your receipts and can’t prove things, though, then the CRA may deny your expenses, which means paying more taxes. Not to mention some extra interest and penalties.
You can’t necessarily protect yourself from getting audited, however the better your books and records are, the less likely it is that you’ll need to spend thousands of dollars or hundreds of hours trying to recreate your books and track down receipts.
4. Tax season stresses me out, what things can I be doing the rest of the year to make it easier?
Keep or, better yet, digitally capture all of your receipts! You’d be surprised how many purchases are tax-deductible.
There are plenty of free or low-fee accounting systems that are easy to use and integrate with your bank and credit cards to track all of your expenses.
Find a reliable bookkeeper to help with monthly, quarterly, or annual filings.
Engage with an accountant early on in the year. They'll help with smart planning and decisions making to help mitigate tax burdens along the way.