T-A-X-E-S. This word can often make people cringe. Whether you have begun the journey of creating a startup business or are involved in an established business, taxes are something that legally and legitimately can not be avoided. Many individuals are not comfortable doing their personal taxes so business taxes can become a whole different ball game. We are here to hopefully make things a little less scary and provide some tips and suggestions to help make taxes a little less of a chore.
We got the chance to sit down with Erik Douglas. Erik is a tax accountant who focuses on helping small business and start-ups with their tax and accounting needs. He owns and operates a tax practice located in Liberty Village.
Q: When should individuals or businesses start planning for their taxes?
A: When it comes to tax planning I really don’t think there is any better time than now. Even if you’re in the start-up phase it’s still important to start thinking about the future. I also believe that if you reach out to an accountant and give him some re-assurance that you’re not shopping around for opinions, they will most likely help you get started free of charge.
Q: What are some ongoing things that individuals and businesses can do throughout the year to make taxes less stressful and chaotic?
A: For those individuals who don’t enjoy filing and taxes I would say the smallest thing that will go a long way is keeping your documents centralized and organized by category. Don’t be overly concerned about the categories, just something that makes sense. The reason I say this is that if you bring a box of receipts to your accountant that is incomplete and disorganized you will end up paying for it. It will end up costing you by increased billings due to the extra time, or increased taxes due to something missing that your accountant doesn’t know exists. After all, we are only human.
Q: Are there any credentials that should be considered when choosing a company or organization to do taxes?
A: I think the logical answer here is you want to find a CPA (Certified Public Accountant). This is because CPAs have to follow a strict code of ethics (there is a 193 page manual of dos and don’ts!) and have an annual responsibility for continued education. It’s not to say an accountant who doesn’t have a CPA isn’t able to provide the services, it’s more of a safer bet when choosing a CPA.
The thing is there are a lot of accountants who are CPAs so that might not help narrow the search. Instead I think generally the best bet is to find someone that you fit with. You really should feel comfortable talking to your accountant so you really want someone you trust and are not afraid to go to when you need help. It may be a bad generalization but I really think that most accountants will do a good job with your taxes, accountants don’t get into tax to do a bad job. What I am trying to say is choose the accountant that feels right. Focus less on the qualifications, and focus more on the personality match.
Q: What are some of the common expenses that can be “written off” that people often overlook?
A: Every time I see the phrase write off I can’t help but think about Kramer explaining write offs to Jerry.
Seinfeld aside, 3 of my favorite business expenses that are overlooked are:
- Home-use-of-office expense. This allows you to deduct rent, utilities, mortgage interest, etc. as a % of business use (to a reasonable limit!).
- Vehicle Expenses. There are a few ways to handle vehicles, usually choosing the calculation that brings the most benefit.
- Business losses! If you’re in start-up phase and working at the same time it’s possible the costs of your side gig can reduce your taxable income from your employer potentially generating a refund (sole proprietor only)
Although those expenses are great the big overlooked way to save on taxes is income to partners, spouses, and adult children. If you’re making money and starting to think about taking a salary there are ways to distribute the income that could potentially save you a lot on taxes.
Q: Is there an optimal amount a company should donate to charity that will give a tax advantage?
A: Honestly tax shouldn’t impact your decision to give to charity, but the things that you should know is that you can only donate to charity up to 75% of your profit. In a business any donations over this limit can be carried forward.
What I would say though is that you should ensure that the charity you are giving to is registered and in good standing. You can search all registered charities, and even charities that have been terminated or suspended by CRA here: http://www.cra-arc.gc.ca/chrts-gvng/lstngs/menu-eng.html. Find one that fits your cause and don’t let tax affect your decision to donate.
Q: What are some common mistakes that individuals make that can be avoided?
A: This is a perfect ending question as it allows me to really try my best to help those who are starting a new business.
The biggest mistake made, which causes all the other common mistakes, is not contacting an accountant early on. I see too often clients coming to me that have really missed out on things in the past because they got advice from their friend or was referred to “their guy/girl”.
Just last month I was talking to a friend of mine and brought up the topic of HST (as I write this I realize it sounds pretty lame talking about tax with friends). Regardless, I asked if he was using the quick method for HST. He wasn’t! I couldn’t believe it as it really is easy money for freelancers in the tech scene. We were lucky but we had to file the return that night to be eligible. However the problem was he was getting advice from another tech friend up until that night.
What I am trying to say is. As an accountant who does a lot of start-up networking and works with a lot of tech companies I see all too often people getting advice from the wrong source. Take the time to find an accountant who works for you when you’re starting a business. Even if you’re your still in the planning stage it could still be worth a small fee (if they charge you) to have peace of mind knowing the information is more likely correct.
There you have it! Some great tips and suggestions to help make the daunting task of taxes less intimidating.