Talent Development Centre

Tag Archives: accounting

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

Should You Buy or Lease a Car?

This post first appeared on the CPA4IT Business Resources section on June 22, 2018

Is it better to buy a car under your name personally, or through a corporation? And is it better to lease – or borrow money to acquire a vehicle?

These are the two most common questions we hear all the time when it comes to buying a car.

Questions to Consider

Should You Buy or Lease a Car?

First, let’s address the question about whether it’s best to lease or buy. While most people believe this to be an accounting question, there are other factors that have a greater impact on your decision. For example:

  • Do you want a brand new car or would you be a happy with a car that is a few years old?
  • What are the current finance and lease rates?
  • How many kilometres will you drive?
  • Are you the type of person that will drive the same car for 12 years – or do you want a new car every few years?

These are the questions that ultimately affect your decision.

Tax Deduction

There are 2 methods for calculating the automobile expense: 1) mileage – and 2) actual expenses. In most situations the mileage nets a higher deduction. If you use the mileage rate, the deduction is the exact same whether you lease or buy. However, if you have an expensive lease – or simply don’t drive much – then using actual expenses may result in a greater deduction. So let’s evaluate the differences in deductions when using the actual method.

With leases you can deduct the total amount of the lease – up to a maximum of $800 a month (assuming you are Toronto-based as an example). With a purchase, you can deduct a percentage of the purchase price of the vehicle each year due to the vehicle’s depreciation in value. The maximum amount that can be depreciated for a passenger vehicle is $30,000. The vehicle can be depreciated at a rate of 15% in the first year, and 30% of the remaining balance for each subsequent year. While there is a difference between these two methods the bottom line savings is marginal.

If you’re going to buy or lease a car, we usually recommend that you do so under your own name and have your corporation reimburse you for its use of the vehicle. On the other hand, if the car is under a company name – and you use the car personally – you must reimburse the company for your personal use percentage of expenses, or take a taxable benefit into your personal income. You’ll also need to calculate a gain or loss when you sell the vehicle: this means more paperwork for your accountant and higher accounting fees for you. One of the great benefits of a corporation is limited liability. However, if your assets are owned by the corporation, you’ve limited the liability to all of your assets – which defeats the purpose.

When you’re making major life decisions such as purchasing or leasing a vehicle, we highly recommend you speak with your accountant to ensure you’re making the best decision. If you have any questions about automobile expenses – or are considering the lease or purchase of a new car – please feel free to contact us directly so we can discuss your particular situation, and assist you in making the right decision – for you.

Expenses and Tax Deductions for Canadian Businesses

April 30th is coming faster than you think so if you’re not already thinking about taxes, it’s time to start. While we always recommend working with a professional to do your books, it’s also wise to have a good understanding yourself.

Knowing which expenses you can claim and how to do it is valuable year-round, and makes tax season less stressful on you and your accountant. This video posted by Answer W Bradley (a Retirement Planner from Ottawa) provides a general list of deductible business expenses for Canadian small businesses. You can also see the complete list and explanations here.

Are Word and Excel Really That Great for an Independent Contractor’s Accounting?

At its core, Microsoft Office offers a suite of tools that nearly everybody uses, regardless of their profession, with Word and Excel being the most popular. Over the years we’ve provided extensive tips on formatting your resume in Microsoft Word and shared several posts with tips to use Excel to its maximum potential.

Throughout our many posts, we have suggested a time or two that IT contractors could use Microsoft Excel for accounting; however, that suggestion always comes with a caution that as powerful as it is, Excel doesn’t easily cover all of your accounting needs. In a recent blog post, Freshbooks also cautions against using Word and Excel to manage your books, even if it’s something that’s always worked for you. While we admit, Freshbooks is a biased source given its product is accounting software, they do make valid points to consider:

You’re Probably Making Mistakes in Word and Excel

Because these Microsoft tools are not created specifically for accounting, Freshbooks argues that it is easier to make mistakes that cost you time and money. For example, fixing small formatting issues in Excel is quick, but frequently making those fixes will quickly take more and more time. Or, maybe you accidentally save over (or forget to save) IT project estimates you create in Word. Then you may have to unprofessionally ask your recruiter or client to send it back to you a month later.

Tracking Cashflow Is Not as Easy

The example Freshbooks provides in their argument is that their product allows for online payment so you can get paid faster, even in a mail stoppage. But a great accounting program will help your cashflow beyond that example in ways that Excel and Word will not do as easily. If you juggle multiple clients and staffing agencies, accounting programs can track their payment status and trends to know who is better at paying. In addition, they will notify you who has yet to pay, automatically send reminders and notify you when it’s time to follow up. If you’re a pro with MS Office, you can probably set these features up on your own, but they will not run quite as smoothly.

Tax Time is Not as Easy

All independent contractors are well aware of the importance of filing your taxes properly. While your fantastic accountant takes care of everything at tax time, they will be thrilled to learn you moved away from Microsoft Office and onto an accounting software. These programs track your expenses and help manage all documentation that come with them. They can also automatically generate reports and calculations based on your tax requirements. The easier you can make tax time on your accountant, the less time it will take them to do your books, and the less they will have to charge you.

The software you choose to use to manage your IT contracting business is a decision to be made based on consultation with your accountant, in combination with your own knowledge of accounting. While this post was inspired by a Freshbooks article, there are many other options and we encourage you to explore them all. One thing is certain, though. If you choose to use programs such as Word or Excel, you will have more inconveniences and mistakes.

Quick Poll Results: How do IT contractors manage accounting?

There are many components to accounting that, if done wrong, can lead to disaster for your IT contracting business. This is not only true for how you record the numbers, but also who manages them.

Depending on your strengths and time availability, it’s not uncommon for independent contractors to pass accounting work off to a relative, close friend or professional. Or, some prefer to manage it themselves to know it’s done how they want it done.  What’s important is that you trust the right person to do your accounting, or you may end up in serious trouble.

In last month’s contractor quick poll, we asked our readers who manages their accounting and the results are split quite evenly between people doing it themselves or hiring a professional. Keeping in mind that everybody’s situation is different, do you think you should switch up who’s looking after your books?

Quick Poll Results: Who Does Your Accounting?

Contractor Quick Poll: Who Does Your Accounting?

With all the benefits that come from being an independent contractor, a major downside for many is having to deal with accounting. There are probably some of you out there who enjoy that stuff (to each their own), but from our discussions with IT contractors, managing the books is one of the more dreaded tasks that come with owning your own business.

Although an annoying job to have to do, accounting is a must for anybody trying to avoid bankruptcy and keep the CRA out of their hair. In this month’s contractor quick poll, we’re curious to know how you make sure it gets done. Do you handle the majority of your accounting or do you outsource it to someone else?

Bookkeeping 101 for Independent Contractors

Perhaps the biggest challenge of taking the leap from being a full-time IT employee to an independent technology contractor is learning the ins and outs of running your business. While your prime responsibility continues to be delivering on your IT projects, you can’t ignore your accounting and tax obligations.

If you’re considering a change, don’t be intimidated by the administrative work that comes along with the countless benefits of working for yourself. Instead, take a breath and watch this video from Dice to get some helpful bookkeeping tips for those starting out in the contracting world.

Canada’s Proposed Tax Changes: Are you “up” on what’s coming?

Morley Surcon By Morley Surcon,
Vice-President, Western Canada at Eagle

Much has been said about the “Gig Economy” over the past couple of years. In today’s frenetic and “instant gratification” society, there are clear data suggesting that short-term contract work is growing in popularity for both workers and businesses who purchase their services. However, recently Canada’s Federal Government has been actively moving towards reforms in the tax laws meant to close “loop-holes” in the system to ensure everyone “pays their fair share”. The problem is that governments have a terrible track record — when it comes to making policy changes, there are often negative, unintended consequences.

The changes proposed will have an impact on independent contractors. There are three areas that the government wants to address:

  • Limiting the potential for income splitting between family members (also referred as “income sprinkling”)
  • Reducing the potential to earn “passive income” on monies that you decide to leave in your businesses vs. paying out to yourself in the form of salary or dividends
  • Stopping the conversion of income to capital gains

Are there people/small businesses that may take advantage in these areas? Most likely. However, the saying “tossing the baby out with the bath water” comes to mind. There are no shortages of commentary online about the potential impact of these changes. I’ve included links to many separate articles to legitimate news sites at the bottom of this blog in the event you would like to read more about this. But suffice it to say, there are likely to be significant consequences to you directly. Reasonable advice is offered in Armando Iannuzzi’s article on KRP’s blog entitled The good, the bad and the ugly of Ottawa’s proposed corporate tax changes where he answers the question: What should business owners do to prepare for these proposed tax changes? He suggests that there is no benefit to paying for legal or accounting work at this time as nothing is written in stone just yet. But you should keep “…these developments on your radar” says Iannuzzi, and ensure you have open lines of communication with accountants you trust.

Eagle isn’t a legal firm or accounting company, so we don’t provide specific advice to our contractors. We are watching this situation as it develops and are actively participating in industry organizations such as ACSESS and, as part of these groups, we are lobbying the government on the contracting community’s behalf. We are a bit surprised at how little the IT contractor community is saying about the proposed changes. Certainly, we are hearing from the medical profession, farmers and small business in general.

Are you following this as it develops? Do you have thoughts you’d like to share with our readership? I encourage you to leave your comments below!

Links to news websites that discuss the proposed changes:

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