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Tag Archives: accounting

All Talent Development Centre posts for Canadian IT Contractors relating to accounting.

5 Ways Independent Contractors Can Keep on Top of Expenses

Staying organized isn’t everybody’s forte. While some contractors will naturally go through life, somehow managing to keep everything perfectly arranged, others are more laid back and let some little items slide. Either is fine, depending on the situation, but when it comes to accounting, those extremely organized (sometimes annoying) people are going to have less stress.

There are different elements to accounting and all require some planning and processes. Expenses, for example, specifically need regular attention in order to ensure you’re keeping within your budget, but also to ease your life when it comes to closing your books and doing your taxes. Here are 5 tips that independent contractors, in technology or any other discipline, can use when managing their freelance business:

  1. Have a routine. Set a date to catch-up on all of your expenses and make sure you’re on track each week. This will stop you from falling behind.
  2. Know your predictable expenses. Understand what regularly happens and what you want to save. This will help with budgeting.
  3. Keep a separate bank account and/or credit card to easily separate personal and business expenses.
  4. Find a way to track expenses that works for you. Try any of these:
    • The old shoebox trick: Throw all of your receipts into it and you deal with them weekly or monthly
    • A spiral notebook: One step above the shoebox, here you tape the receipt to a page and add notes about what it was
    • Your cell phone: The more high tech version of the shoebox or notebook is to take a picture of every receipt, immediately after receiving it. There are apps you can download that will help you organize all of them too.
    • MS Excel: If you’re a spreadsheet geek, record everything in Excel. You can really get crazy staying organized and categorizing items with this.
    • Accounting software: This requires an investment, but the right accounting software makes a huge difference in staying organized.
  1. Get help. Specifically from an accountant, but also chat with other contractors in your field for ideas on how they’re organizing themselves.

Can you add any tips, based on your experience, that keep you organized in your technology consulting business? Please share them in the comments below!

How Will You Know When It’s Time to Incorporate?

This post first appeared on the CA4IT Insights blog on March 20, 2017

How Will You Know When It’s Time To IncorporateIn short, there’s no single milestone in a business’s maturity that dictates incorporation. It depends on a lot of variables, so it may require self-evaluations at multiple phases to determine when exactly the timing’s right for incorporating your small business.

When you’re conducting those evaluations, it’s important to create an accurate profile of your company and to give consideration to what it’ll look like as a corporation. There are distinct advantages and disadvantages to the title.

In the former column, you’ll have much greater flexibility with your taxes, including how you pay yourself—salary, dividends, bonus—or even if you pay yourself. A 15-percent preferred tax assessment on the first 500,000 of profit may prove to be all the incentive you need to leave your earnings in the company.

In the latter, incorporation isn’t inexpensive. And when you’re starting a business, expenses can already feel too numerous to track, let alone cover. Perhaps the only thing more precious than funding in those early days is time. Incorporation’s going to take a big bite out of that, too, because there’s more paperwork that’ll need to be filed—separate tax returns, notifications of share sales and directors’ actions.

If there is a brief answer to the question at the top, it’s this: Incorporating a business in Canada should not be entered into lightly. The more you understand, the more comfortable you’re likely to feel with your decision.

As one of the most respected accounting networks across Canada over the last quarter-century (and one of the few that’s ISO-registered), CA4IT specializes in business accounting services, including incorporation advising, for independent contractors, consultants and entrepreneurs. Click here for a free (no-obligation) consultation.

Independent Contractors Must Understand Accounting

Have you finished your taxes yet or are you waiting until the last-minute before starting? Accounting and taxes are one of the biggest headaches independent contractors report having to manage in their business. That’s why many hire out their bookkeeping. Still, other contractors prefer to manage accounting year-round and only go to an accountant occasionally when professional advice or revision is necessary.

Whether you do your own accounting or hire it out, every independent contractor still needs to understand the basics of the trade in order to properly analyze their business’s success and plan strategically for the following year. Without this knowledge, you’re likely to find yourself unpleasantly surprised due to decisions you made without the proper knowledge.

As usual, we strongly encourage you to consult with a professional accountant. However, if you’d like an overview of accounting basics, then this infographic from Bplans is a great start.

Accounting Cheat Sheet Infographic
Courtesy of: Bplans

3 Reasons Why You Need a Business Bank Account

This post by Nellie Akalp originally appeared on the Freshbooks Blog in February 2017

Keeping It Professional: 3 Reasons Why You Need a Business Bank AccountAs a small business owner or freelancer, you probably encounter a lot of overlap between your business finances and personal finances. On the surface, it seems simpler to just have one bank account—after all, it’s a centralized place to keep tabs on client payments that come in, and personal and business expenses that go out.

However, there are several reasons why you must separate your business finances from your personal finances. For one, having a business bank account will separate itself from your personal assets, while streamlining your tax records. But that’s not all. Below are the three reasons why opening a business bank account is crucial for your business and your financial sanity.

Reason #1: A Business Bank Account Keeps the “Corporate Veil” Intact to Protect Your Personal Assets

Many small business owners form a limited liability company (LLC) or corporation because it helps shield their personal assets from things that might happen in the business—for instance, if the business is sued or can’t pay its debts. This is known as a “corporate veil” since it forms some separation between the business owner and the business.

In order to keep that personal liability protection, you need to properly maintain your LLC or corporation. This includes drawing a clear line between your business finances and your personal finances. By creating a business bank account, you ensure that your business is its own entity and separate from you as an individual.

In addition, if your business is ever sued, the plaintiff may try to pierce your corporate veil by showing you haven’t maintained the corporation/LLC to the letter of the law. In this case, they can go after your personal assets. In instances like this, that’s why it’s absolutely critical for LLCs and corporations to keep business finances completely separated from personal finances.

Reason #2: A Business Bank Account Helps You Stay Organized Come Tax Time

Combining your personal account and business account is asking for more trouble that you’d think. Ultimately, combined accounts make it harder to stay on top of your books come tax time.

You may find yourself spending countless hours wading through the past year’s transactions—including personal trips to the grocery store—just to find business expenses to write off. Having separate accounts streamlines your recordkeeping which, at the end of the day, saves you time and ensures you won’t miss any legitimate deductions.

Reason #3: A Business Bank Account Gives You More Credibility to Your Paying Clients

When you’re running a business, it can look a tad unprofessional to pay your contractors with a personal check or have your clients write a check to you as an individual. Will this ever be a deal breaker? Probably not. But, having a dedicated business banking account can send the right signals as you scale your operations and evolve from freelancer to business owner.

As a side note, if you’re running your business as a sole proprietorship, you don’t legally need a separate bank account for your business, but it’s still a good idea for the second and third reasons. Having a business bank account can help make your case to the IRS that you are indeed running a business and are entitled to deduct your business expenses should you ever be audited.

You Ready? What You Need to Open Your First Business Bank Account

Opening a business bank account is a relatively simple process. To make things easier, you can open an account at the same bank where you already have a personal account, so you only have to deal with one institution. Alternatively, you may receive reduce banking rates if you belong to a professional group or organization—such as a group for writers, veterans or performers. Check if they offer access to business checking services through a specialized credit union. This can be a great option.

No matter where you choose to open your business account, you’ll need the following documentation:

  • Your company’s EIN (or Federal Tax ID number).If you don’t already have an EIN for your business, you’ll need to get one from the IRS. You shouldn’t use your personal social security number to open a business account.
  • Articles of Organization / Articles of Incorporation.If your business is structured as an LLC or Corporation, then you’ll most likely need your Articles of Organization/Articles of Incorporation that’s signed and stamped from the state. You may also need to show your Operating Agreement.
  • Certificate of Good Standing.In some cases, you may also need to get a certificate of good standing from the state. This documentation essentially says that your business is up to date on its state taxes and other requirements.
  • Tax ID, social security number, DBA.If your business is structured as a sole proprietorship, you’ll need less documentation, since sole proprietors are considered more like consumers than a business. In this case, you’ll most likely need a Tax ID, social security number, as well as a DBA (Doing Business As) registration if you’re using a business name that is different than your personal name.

As your business grows, it’s crucial to build a proper legal and financial foundation. Opening a separate bank account is one small step in that direction, and will help keep your books organized, as well as ensure your business and personal lives remain separated. In addition, opening a bank account will help form your business’ credit history—a big milestone should you ever want to take out a business loan or line of credit in the future.

About the Author: Nellie Akalp is a passionate entrepreneur, small business expert, professional speaker, author and mother of four. She is the Founder and CEO of CorpNet.com, an online legal document filing service and recognized Inc.5000 company. At CorpNet, Nellie assists entrepreneurs across all 50 states to start a businessincorporateform an LLC, and apply for trademarks. She also offers free business compliance tools for any entrepreneur to utilize. Connect with Nellie on LinkedIn.

Terrible Tax Advice Exists — Here’s How to Spot It

This post by Janet Berry-Johnson originally appeared on the Freshbooks Blog in March 2012

Terrible Tax Advice Exists—Here’s How to Spot ItHow do you know you have a great accountant? He has a tax loophole named after him… All jokes aside, tax is a complex subject and, despite decades of talk about simplifying the tax code, it just seems to get more confusing each year. After a decade of working in public accounting, I can’t count how many times clients came to me to ask about sketchy tax advice they’d received from dubious sources.

“My neighbor says Social Security income isn’t taxable.”

“My girlfriend’s dad told me I can deduct all of my vehicle expenses if I set up an LLC.”

“I saw an ad on TV that promised me a bigger tax refund than the competition.”

“I heard that paying taxes is voluntary.”

When you’re seeking out sound financial answers, be wary of the source. Next time someone offers their tax advice, look out for these 8 red flags.

  1. The Advice Sounds Too Good to be True

This kind of advice usually involves tax-free income or being able to deduct personal expenses.

According to the IRS, all income is taxable unless the law specifically says it isn’t. Life insurance proceeds, scholarships, gifts and inheritances, child support payments, welfare benefits and damages for physical injuries or sickness are all types of income that may not be taxable. However, there are a few situations where they might be. When in doubt, consult with a qualified tax pro.

Personal expenses are rarely deductible. Some common exemptions are home mortgage interest, real estate taxes, medical expenses and charitable contributions. They’re allowed as itemized deductions on Schedule A of your Form 1040. Other expenses for your personal residence or vehicle are only deductible if they are used for business. If a friend tells you he writes off all of his home or vehicle expenses, he’s practically telling you he’s committing tax fraud. Don’t take tax advice from a crook.

  1. The Advice Lacks Context

Above, we mentioned that certain types of income are usually non-taxable, but may be taxable under certain circumstances. The tax code is rarely absolute. When you read the code, you’ll see a lot of words and phrases like “generally,” “except under certain conditions,” “usually” and “in most cases.”

Most tax pros joke the answer to any question starts with the words “that depends.” Be wary of any advice that doesn’t take your unique situation into account.

  1. You Have Difficulty Understanding It

The tax code is complicated, but a good tax pro should be able to explain any basic rules, deductions and credits that apply to your return.

Remember: you are responsible for everything on your tax return, whether or not you paid someone else to prepare it for you. If you don’t understand something, ask! If you’re getting a much larger return (or owe more money) than expected, consult someone and find out why.

  1. There Might Be a Conflict of Interest

Look out for tax advice from people who are seeking to receive a commission or kickback. Some tax pros are also qualified to give financial advice but avoid taking advice that comes with an ulterior motive. The person might suggest you invest in a real estate venture that they hold a stake in or recommend financial products for which they receive commissions or referral fees.

Don’t be afraid to ask, “How will you benefit from this?” if you suspect the advice is not in your best interest.

  1. The Advice Suggests Taxes is Voluntary

No matter how many times these arguments get shot down in court, some people continue to claim that the payment of federal income taxes is “voluntary.” This claim is based, in part, on the fact that the IRS itself describes the way we file and pay federal taxes as “voluntary compliance.”

As the fact-checking website Snopes points out, “common sense dictates that if paying income tax were really voluntary, that tidbit of information wouldn’t be known to only a small cadre of tax protesters while millions of other Americans annually forked over considerable amounts of money they weren’t obligated to pay.”

As numerous tax court cases have shown, neither the obligation to file a tax return nor the payment of income taxes is voluntary. File your return and pay what is owed. Otherwise, you’ll soon find out just how mandatory paying taxes really is.

  1. The Advice is Referred to as a “Tax Shelter”

There are a few bonafide tax shelters such as those related to oil and gas exploration and development. However, most are at least bad deals from a business viewpoint, and at worst they violate tax law. Any business deal that needs to be structured as a tax shelter to be profitable is not a sound business deal. Good business deals show profits before tax considerations.

There are also tax shelters that promise you’ll receive $400 in deductions for every $100 you invest (or some similar “too good to be true” scenario). The tax authorities are constantly investigating such tax shelters. If you get caught avoiding income taxes by illegal means, you’ll have to pay back taxes, plus interest and some hefty penalties.

  1. Someone Promises You a Big Refund… Before They Look at Your Info

Every year during tax season, the commercials, ads and billboards that promise huge tax refunds begin to flood in. No accountant can get your refund faster or bigger than anyone else. You are entitled to the same refund, whether you prepare the return yourself or hire a professional.

Anyone promising they’ll get you the biggest refund may be padding your return with credits you’re not entitled to. Don’t fall for the hype.

  1. You Receive No Advice at All

Even if you normally prepare your own tax return, you may occasionally run into a new situation and need help. Major life changes, such as selling real estate, buying your first home, starting a new business or adopting a child usually means significant changes to your tax filing.

Don’t be afraid to seek out the advice of a professional. Even if you want to prepare your own return, most tax pros will be willing to sit down with you to answer questions and offer advice on your unique situation. The hourly rate they’ll charge may be well worth avoiding an audit—or paying a penalty for filing an incorrect return.

If you’re unsure, seek that advice from a certified and experienced tax pro. Look for someone with a credential, such as a CPA or EA. These professionals are well-trained, held to a code of ethics and required to maintain up-to-date knowledge.

At a minimum, all tax preparers in the United States are required to obtain a Preparer Tax Identification Number (PTIN). You can use this search tool available on the IRS website to find a preparer who holds a professional credential or voluntarily obtained a certain number of continuing education hours each year.

Getting professional advice is more expensive than getting advice from your skateboard buddy, but think of it as insurance: pay a small premium today to avoid an expensive disaster tomorrow.

About the Author
Janet Berry-Johnson is a CPA and a freelance writer with a background in accounting and insurance. Her writing has appeared in Forbes, Parachute by Mapquest, Capitalist Review, Guyvorce, BonBon Break and Kard Talk. Janet lives in Arizona with her husband and son and their rescue dog, Dexter. Outside of work and family time, she enjoys cooking, reading historical fiction, and binge-watching Real Housewives.

The T4 and T5 Deadline is Approaching

The T4 and T5 Deadline is ApproachingWhether you’re an independent contractor who receives a salary from your business or a contractor who receives compensation through dividends, you’ll want to pay attention to this reminder.

The Canadian T4 and T5 filing deadline is the last day of February, which this year is Tuesday, February 28th. Sure there are still a few weeks and February feels like the longest month of the year, but if you’re like many others, procrastinating on accounting comes fairly easily. At the very least, take a minute to create a plan and schedule some time to get this task completed.

While we always encourage and strongly recommend you seek advice from an accountant, here are a few other resources:

Happy filing!

This CRA Mobile App Will Help with Your 2017 Taxes

This CRA Mobile App Will Help with Your 2017 Taxes2017 is in full swing! Most people are back from holidays (if they were fortunate to take them), projects are moving again, recruiters are calling, and tax season is approaching. As you start to look at your 2016 books and consider working on your taxes, you may be realizing that you could have done a better job at staying organized in that area (and hopefully you are setting a goal to keep up-to-date in 2017). Vice-versa, you could be super stress-free right now because you were well prepared at this time last year.

Regardless of your situation, a new year means a fresh start to get organized. We can’t help you with your 2016 taxes, but we can give you a boost for this year. The CRA created a mobile app that lets independent contractors create custom reminders and alerts for key CRA due dates related to instalment payments, returns, and remittances. Download the iOS, Android, or BlackBerry version, or check out all of CRA’s mobile apps here.

Contractor Quick Poll: When Will You Retire?

Independent contractors enjoy many benefits working for themselves. Unfortunately, there are also some downsides, including a lack of pension or employer RRSP contributions, as enjoyed by some employees of large corporations and public sector organizations. This doesn’t mean that you can no longer retire, or that you must wait longer to retire, but that you need to plan your finances differently to achieve your retirement goals.  In fact, the nature of your work also means that you may enjoy partial retirement much earlier than the average person!

That being said, we’re curious to know when most independent contracts plan to retire. In this month’s contractor quick poll, we’re asking how old you plan to be when you finally fully retire from work and start enjoying a quieter, less hectic life.

Accounting Basics for the Independent Contractor (Video)

Independent contractors are essentially a small business with one employee – yourself. For that reason, you need to follow all of the same accounting principles as any other small business. The good news is: it also means that any accounting tips and tricks for “small businesses” can be applied to your independent contracting business.

Especially if you’re just starting out as a freelance IT professional in the gig economy, the accounting side of the business can be intimidating. To help ease the stress, check out this video from Patriot Software that runs through some basic accounting tips for small businesses.

If you’re still unsure about these tasks, we strongly recommend you engage a professional accountant. Avoiding tax complications and properly planning your finances will be well worth the money you pay.

The Dreaded Project Gap

How Your Contracting Business Can Plan for Continued Financial Health

This post first appeared on the CA4IT Blog on February 16, 2016

The Dreaded Project Gap—How Your Contracting Business Can Plan for Continued Financial HealthAs an independent contractor, you know that your business relies on a consistent project load to maintain profitability. However, at some point, you may face a gap between projects. This situation creates many concerns, but with careful financial planning, these rare occurrences should have little, if any impact on your bottom line. By utilizing some commonsense tips, you can safeguard against any effects from project gaps or other unforeseen disruptions.

Tips for Minimizing the Impact of a Gap Between Projects

  • First and foremost, you should always have a plan in place for project gaps. If you are just starting your small business, you need professional accounting advice as to how to plan for downtime not just between contracts, but for all unexpected events that could disrupt your business, such as illness. Remember, your business relies on your ability to perform, so if you suddenly cannot work for any reason, you need a financial back-up plan. This can include a focused savings plan or an emergency plan to liquidate assets or scale down expenses.
  • Stay on top of every expense and think ahead for tax deductions. Tools like cloud-based accounting for small businesses let you keep track of every income and expense in real time so that you always know how you’re doing. The most powerful tool you have is information, and when you can see your business’s financial picture on demand, you gain the power to manage it proactively.
  • Use downtime wisely. Whether your gap lasts a few days or a couple of weeks, never look at this as vacation time. Brush up on your continuing education, or go after than certification you need. View every day as an opportunity to grow and refine your business.

As a business accounting service specializing in independent contractors, CA4IT believes that you need careful, conscious preparation for changes in your workload. We can help you plan for any scenario and fro continued financial stability. Turn to us for all of your accounting needs so that you always feel confident about your financial outlook. To learn more, contact a CA4IT representative for the best accounting help in your community.