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Tag Archives: accounting

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

5 Tips for IT Contractors Who Hate Accounting (Video)

Accounting is a thorn in many independent contractors’ sides. After all, if you enjoyed bookkeeping, then you would have become an accountant, not a technology professional. Alas, keeping your books in order and accounting organized is an essential responsibility for an IT contractor. Not only does it keep the government happy, but being on top of it will help your business thrive and simplify planning for things like vacation, retirement, and salary.

If you’re still struggling to keep your money organized, have a look at this video from Ward Williams. They provide 5 quick and simple tips that can make an independent contractor’s life much easier.

Benchmarking and Independent Contractors

Are You Setting Your Business Up for Failure?

This post first appeared on the CA4IT Blog on June 3, 2016

Benchmarking and Independent Contractors -- Are You Setting Your Business Up for FailureFor those considering starting a business as an independent contractor, they face many decisions in the initial launch of their endeavors. However, some also jump in feet first with no real long-term plan for the growth and success of their business. They assume that they can utilize their professional skills and experience to build a brand one client at a time. While a successful independent contracting business truly begins with personal talent and motivation, you should also create a comprehensive business plan that has clear benchmarking built into it.

What is Benchmarking and Why is It Important for Independent Contractors?

While benchmarking sounds like a term business majors learn in college, it’s truly a principle that applies to any successful business model. Benchmarking is a measurement of the quality of a business’s policies, products, programs, and strategies, as well as a comparison of those to peers or competitors. When you incorporate the principles of benchmarking into your business, your goal is to determine what improvements you need. You also want to analyze how similar contractors achieve their high performance levels, and then use this information to adopt your own plan for success.

Benchmarking seems like commonsense, but new independent contractors often get so caught up in the everyday workload that they fail to take that objective step back. For example, have you reached the point that incorporating a small business makes sense for you, or are you too focused on building your brand or client acquisition? Unlike larger corporations, independent contractors wear all the hats. Therefore you not only must perform all of the day-to-day tasks for your clients, but you are also responsible for marketing, bookkeeping, and future planning. You have to look at the bigger, more long-term picture even if that’s the last thing on your mind right now.

Our CA4IT member firms believe that benchmarking, especially in terms of financial practices and tax planning, helps promote successful small businesses. Whether you need a partner in virtual bookkeeping, or want to know more about incorporating a business in Canada, we have the assistance you need to construct the most effective business model. Contact a representative today, and treat your business like the well-planned organization it needs to be.

Contracting and the Underground Economy

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

The Underground Economy Doesn’t Apply to Independent IT Contractors… Or does it??

The Underground Economy Doesn't Apply to Independent IT Contractors... Or does it??The topic of Canada’s underground economy seems to be raised again and again over the course of years and tends to come in waves — we’re seeing one now.  In the last week alone, I’ve read several newspaper articles and even heard it on my drive in on the News Talk radio station that I listen to.

What is the “underground economy”?  Sounds pretty sinister and, I suppose, parts of it might be, but it’s a lot more common than most people realize.  The CRA defines the underground economy as:

The underground economy is any activity that is unreported or under-reported for tax and GST/HST purposes. Often called “moonlighting” or “working under the table,” it can include bartering, failing to file tax returns, omitting an entire business activity from your tax return, “skimming” a portion of business income from what you report on your taxes, and not reporting a portion of employment income like tips and gratuities.

Generally, any income you earn is taxable and you have to report it on your tax return. If you don’t file your tax return or register your business for GST/HST when you’re supposed to, or you don’t report all of your income, you are participating in the underground economy.

So, by this definition, it is the guy down the street that does landscaping on the side; it’s the waiter who pockets your tip without claiming it as income; it’s the small business that accepts cash without putting it through the till.  Various newspaper articles estimate Canada’s underground economy to be worth between $42 Billion and $46 Billion — in aggregate, not a small amount.  That’s a lot of tax that is not being collected and everyone from the CRA to Chartered Accountants are looking at ways to curb these practices.  I’ve seen ideas ranging from legislating restaurants to track and report tip money on T-4’s to instituting a reward program for leads that result in $10,000 or more in taxes collected. (This latter already exists. CRA’s program is called the “Informant Leads Program” and, apparently, some of the most common “sources” of leads come from ex-business partners and divorced spouses).

As the economy is suffering and government spending is being spread very thin, this missing tax revenue is being highly coveted by government. But this doesn’t impact professional and/or technology contractors, does it?  After all, most are hired via a well-defined contract and have clear paper trails including time sheets, invoices and remittances.  The answer to that question is yes.  Well, maybe.  Certainly the paper trail will help in the case of an audit but by the time there’s an audit, the pain is already being felt.

Independent contractors (IT, Finance/Accounting, Engineering, etc.) should have concerns that the government may take a broad-brush approach to contractors/temporary labour in general; lumping them all together without full consideration for their differences.  This is one reason that Eagle belongs to (and has taken leadership in) such industry organizations as ACSESS and the NACCB, which are staffing industry associations who are actively lobbying the Canadian and Provincial governments on behalf of the industry and the contractors that are a part of it.

If you wish to learn more about the underground economy in Canada, I’ve attached links to some recent new articles below.  Let me know your thoughts on this issue by leaving a comment below!

Don’t Forget to Check for Updates in Payroll Tables

Don't Forget to Check for Updates in Payroll TablesThere are two ways independent contractors typically compensate themselves – dividends from the corporation or receiving a salary. The method you use is ultimately between you and your accountant, but if your business requires payroll, then don’t forget that you may need to update your payroll deductions on July 1st.

The 2016 Federal Budget announced earlier this year will have many implications to business, including some changes to payroll deductions. Here are a few resources to help you out:

Your accountant will also be your primary source of information on this topic. If you do have any specific questions, feel free to leave them in the comments below and we can help you find the answer.

Cloud-Based Accounting and Bookkeeping

This post first appeared on the CA4IT Blog on February 24, 2016

Streamlining Operations While Promoting Security

Cloud AccountingBookkeeping and accounting for independent contractors present many challenges. However, perhaps the biggest challenge is keeping up with so much important information and processes for these busy, on-the-go providers. Every lost receipt or invoice hurts your bottom line because your taxes require truly meticulous records. In the past, independent contractors lost a lot of time through traditional bookkeeping and accounting practices. Luckily for modern small business operators, the creation of virtual accounting services has removed the need for such time time-consuming processes. With cloud-based accounting solutions, independent contractors just like you have found flexibility, reliability, and convenience for their financial management.

In the past, small business owners trekked to their accountants’ offices, boxes of paper in hand, or spent days hoping important documents got where they needed to go. However, with the advent of cloud-based accounting and virtual accountants, you can remain connected with real-time data updates. Imagine snapping pictures of invoices or receipts, and uploading them to your cloud bookkeeping tools. Come tax-time, you have a safe, sure, and more importantly, accurate recording on your income and expenses. Likewise, your virtual accountant gains instant and up-to-date access to your information, so you both remain current and aware of your financial standing. This shared access promotes both effectiveness and efficiency.

Why Should I Use Cloud-Based Accounting?

What makes cloud-based accounting so useful for independent contractors is its ability to streamline both bookkeeping and tax preparation. Those hours you don’t spend searching for paperwork or making appointments translates into more time you can give to your clients, or yourself. Additionally, you will discover how much less stressed you feel when you know your information is safe, secure, and in the hands of your accounting professional.

At CA4IT our member firms remain on the forefront of cloud-based accounting technologies, and we want to help you take advantage of these amazing tools. Call us today and take the first step to taking control of your financial future.

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Should You Use a Business Credit Card?

This post, written by Heaven Stubblefield of CompareCards.com, first appeared on the Freshbooks Blog on March 3rd, 2016.

Credit CardsWhen I first started working as a freelancer, I was thrilled to call myself a business owner. All I could think of were all the cool loans, opportunities, and credit cards I could get with my own company. So I went in search of the biggest business credit card I could find. I wanted to rack up tons of rewards and get money back at the end of the year. But what did I get instead? A $120 annual fee that wiped my minimal rewards out completely.

Now, that didn’t mean I couldn’t benefit from my business credit card. Along with the “cons”, there are some clear “pros”. In today’s article, I’ll take you through some key points to help you evaluate if a business credit card is right for you.

Why business rewards don’t work for small businesses

Did you know the average business owner can get $1,750 back a year using the Chase Ink Classic card? This sounds great, but the study that gathered this data assumes you’ll spend $55,000 per year on your credit card.

And so we see a major issue with business credit cards: They’re not designed for most freelancers, who typically spend only a couple hundred bucks a month on business expenses. When you aren’t spending 5-figures on expenses, the rewards won’t add up to huge financial gains.

The real reasons to use business credit cards

You can’t rely on cash back bonuses or rewards points as a freelancer, but you can still benefit from having a credit card for work. Here are some reasons why:

  • Building business credit:Your business credit is different than your personal credit, and you’ll need it to get a business loan. The bank can look at your personal income and credit, but it’s harder to land large capital that way.
  • Managing expenses:It’s easy to keep track of your overhead when you put all of the transactions on one card. Rather than buying office supplies with the same money you use for Cheerios and toe socks, you can separate your money to budget better in the future.
  • Preparing taxes:If you keep all of your costs on one credit card, all you need is a copy of your card statements to total your loss for the year. Then you’ll easily be able to figure out your profit level, taxable income, and all that other fun stuff that can be a nightmare if your personal expenses are mixed up with your business expenses.
  • Sharing funds:If you are in a partnership or you have a couple contractors working for you, you can give them access to your company’s money by way of a business credit card. You can get the card in the other person’s name so you know who’s spending what. Then you can spot any problems that may arise.

What to Look for in a Business Credit Card

If the info above has convinced you to apply for a business credit card, here are some things to watch out for:

  • Intro rates vs. Actual rates:A lot of card companies will offer low APRs and annual fees at first, but then they increase those rates after a year or so. Don’t get stuck with a card that you can’t afford long-term.
  • Annual fee:This is money that you have to pay every year just for using the card. If you don’t earn enough rewards to cover the cost, you’re essentially losing money by keeping the card around.
  • APR:This is the annual percentage rate, or the interest you’ll have to pay if you don’t pay off your balance. If you do manage to pay this off every time you buy something, the APR won’t matter at all.
  • Balance transfer fees:These fees occur when you move a balance from one credit card to another. You should only have to worry about this if you’re trying to consolidate your debt.
  • Foreign transaction fees:These fees happen when you buy items from another country. If most of your business involves drop shipping or travelling overseas, look for the lowest foreign transaction costs possible.
  • Credit acceptance:If you know your credit is bad, don’t apply for a card that requires excellent credit. This will make someone pull your credit report for no reason, and excessive pulls can lower your score over time.
  • Rewards:Even though the rewards you get will probably be minimal, you should look for a card that complements your spending. For example, if you mostly drive for your job, find a card with great gas rewards.

Don’t get fixated on the way a card looks or the money it has to offer. Compare all the terms to find the best one for your situation.

There is a lot more to business credit cards than meets the eye. You may not be able to fully enjoy the rewards from them, but you can at least build your credit and save some headache meds when tax season hits.

I use my card to pay for every single thing I need for my business, which allows me to see how much I need to save for the next month. Simply put, I use my card as a wallet-sized accountant, keeping me in line from month to month.

Do you plan on getting a business credit card? And for those that already have one, share how you’re using it in the comments below. I’d love to hear everyone’s tips.

About the author: Heaven Stubblefield is the content director for CompareCards.com, one of the leading credit card comparison sites on the internet. You can see more helpful tips and tricks from her on the site’s blog,CompareWallet.

Tips for Better Cash Flow

This article first appeared on the CA4IT Blog on January 27, 2016

Tips for Better Cash FlowWe told you in November about some things we learned at QuickBooks Connect 2015, which took place in San Jose. The national event brought together small business owners, entrepreneurs, professional accountants, and developers for a weekend. We heard talks by famous people (Oprah, Jessica Alba and Brian Grazer, for starters) and by people like us – business owners sharing what they’ve learned with their peers.

The conference was great; in addition to providing accounting advice, speakers also offered life lessons and inspiration for building our businesses. One important lesson we learned at the event concerned cash flow, which is important for every business. Here, according to QuickBooks Connect speakers, are five tips to help your business maximize cash flow.

  1. Accurate record-keeping – you can’t keep the cash flowing unless you invoice in a timely manner and follow up when it’s appropriate. Make sure your accounting records are up to date and accurate. Hire a small business accountant if you don’t have the time or knowledge to maintain your own records. Invest in accounting software like QuickBooks, which lets you see your receivables at a glance. Two other websites that could also help you are QuickBooks and intuit.com
  2. Plan ahead– budget your income and expenses for the coming year. This will help you anticipate when you might have shortfalls so you can plan ahead for getting through the lean times. The QuickBooks budgeting feature can help you do this, as can the sites liveplancom and score.org.
  3. Jump-start your receivables– Invoice your clients quickly, reduce payment terms and be aggressive about collecting. QuickBooks e-invoicing feature can help, as can invoicesherpa  and com
  4. Manage your payables– Don’t tie up all your cash in inventory. Extend your payment terms with vendors and schedule payments in advance. Sites like com and online banking bill pay can help you manage your payables.
  5. Line up funding sources before you need them– Check out the Small Business Administration website for programs and offers that can help small businesses. Talk with professional accountants for advice about funding sources you can tap when cash flow isn’t where you hoped it would be.

Lessons like these energized established entrepreneurs and new business owners looking to grow their businesses. Hope you find them useful. If you’re interested in working with professional accountants with the expertise you need to take your business to the next level, give our experienced CPAs a call today at 800-465-7532 or http://ca4it.com/contact/.

The Tax Implications of Doing Business in the U.S.

This post first appeared on the CA4IT Blog, December 7th, 2015

Tax-Saving Opportunities for Independent Contractors

The Tax Implications of Doing Business in the U.S.Because data flows freely across international borders, many IT professionals have developed an international clientele. While doing business internationally can help Canadian companies to grow, smart business owners are keeping an eye on the tax implications of doing business in the U.S. The Canadian Business Journal reports that while most Canadian companies are on top of the federal tax laws that apply to their U.S. business activity, some are unaware of the state and local taxes that can significantly cut into their profits.

According to CFO Magazine, a number of states are becoming aggressive about collecting additional income tax revenues from corporations by asserting economic nexus ­­– a situation in which a business has a sufficient connection with a state to subject it to taxes imposed by that state. A CFO survey found that California and New York are the states that are most aggressively leveraging economic nexus to generate tax revenues, followed by New Jersey, Michigan, and Massachusetts. A number of other states are also actively seeking to collect tax revenue from business from other states and other countries.

Complicating the situation is that each state has its own tax code, which makes for a wide range of state tax bases and rates. And it’s not just states that are looking to maximize their revenues at the expense of non-local companies. Many cities and municipalities have their own rules covering income taxes, gross receipts, and sales taxes.

Income tax accountants recommend that businesses research state and local tax laws before establishing a nexus in an area. Understanding your obligations before you start doing business across the border gives you the best opportunity to reduce your tax liability. If you’re already doing business in the U.S. and haven’t paid state taxes, The Canadian Business Journal recommends that you evaluate the benefits of entering into a voluntary disclosure agreement with the state. A voluntary disclosure could result in a reduction in multi-year back tax liabilities and might reduce the penalties and interest you may owe. A voluntary disclosure could also mitigate potential criminal penalties arising from a failure to file taxes in the U.S. Be sure to consult a tax attorney before making any disclosures to a government agency outside Canada.

Tax liability is a complicated area. If you’re interested in expanding your business into the U.S., or you have already established an American clientele, it would be to your benefit to consult an accounting and bookkeeping service or more ideally a professional accounting firm like CA4IT that specializes in helping IT consulting professionals. Give our experienced CPAs a call today at 800-465-7532 or contact us by email.

Tax-Saving Opportunities for Independent Contractors

This article was originally posted on the CA4IT Blog on December 4th, 2015

TaxAs an independent IT consultant, you are intimately familiar with how much it costs to operate your business and often, it seems like the CRA isn’t helping to keep your costs manageable. Since the CRA won’t be going away anytime soon, keep the following tax planning strategies in mind to ensure your tax bill is as low as possible next year. While all of these tips are easy enough to do by yourself, we recommend hiring an accountant for IT consulting professionals to make sure that you get every tax break your business is entitled to each year.

According to the CRA, you can deduct any reasonable current expense you paid or will have to pay to earn business income. There are a number of tax deductible expenses that independent contractors can write off, including:

  • Your vehicle – You can write off, at least partially, your costs for fuel, parking, and regular maintenance like oil changes, any necessary repairs, highway tolls and insurance. The amount you can write off depends on how much you use your car for work. If you use your car 75 percent of the time for work-related trips, then you can write off 75 percent of these expenses. Be sure to keep track of work related travel so you can accurately take advantage of everything that you’re legally entitled to deduct.
  • Travel – You can legitimately deduct the cost of hotel accommodation and public transportation fares when you travel for business, and 50 percent of what you spend on food and entertainment.
  • Supplies – You can deduct the cost of items your business uses indirectly to provide goods or services (for example, drugs and medication used in a veterinary operation, or cleaning supplies used by a plumber).
  • Professional services – The CRA lets you deduct accounting and legal fees you incur to get advice and help with keeping your records. You can also deduct fees you incur for preparing and filing your income tax and GST/HST returns.
  • Some computer and software expenses – If you lease computers, cell phones, fax machines and similar equipment, you can deduct the percentage of the lease costs that reasonably relates to earning your business income.

These are just a few of the ways you can save money and reduce your tax liability as an independent IT contractor.

For more information about ways to save money as a small business owner, give one of our experienced CPAs a call today at 800-465-7532 or contact us online.

Update: The CRA, PSBs and Independent Contractors

David O'Brien By David O’Brien,
Vice-President, Government Services at Eagle

NACCBMany independent contractors are aware of, and are of course keenly interested in, the CRA initiative that began over 6 years ago in 2010. Independent contractors’ employment statuses were assessed through several audits that resulted in many deemed to be Personal Services Business (PSB’s). Since then, Eagle has provided resources, presentations and information on the topic, and recently, many of our followers have asked for updates on this issue.

NACCB is the industry association that represents IT Services organizations like Eagle in public policy issues. Eagle is an active member of NACCB and your author currently also serves as the President of the Ottawa Chapter. The NACCB is very active on this PSB issue and works with the CRA, other associations like ACSESS, industry members and contractors directly affected in this assessment initiative.

Here’s a quick recap for those not aware of the details, plus an update on where we are today:

The original audit took place a little more than 6 years ago, over a 13 month period. It identified 300 files, of which 112 were deemed PSB’s or, more specifically, “incorporated employees” (61 were IT-based while another 51 were “professional”). As such, these files were reassessed relative to small business deductions and expenses claimed that were subsequently disallowed, as well as income. The net result of which was thousands of dollars in assessments owed by the business.

As a result, NACCB and other associations worked closely to understand how legislation was interpreted differently by industry than the CRA. To that end, NACCB agreed to work with and support a number of individuals who had been assessed, with a goal to get to a better legal understanding. They engaged a law firm to represent them and file notices of objections, effectively legally appealing the assessment. At the same time, the NACCB continued to have dialogue through multiple meetings with stakeholders and CRA, while each of the 16 cases worked their way through the legal system.

The first case to go to trial resulted in a consent to judgement before the hearing started, which meant CRA was dropping the judgement against this individual. It was then agreed the best approach going forward was to continue to allow every other subsequent case to proceed on their own. The result was that many were deemed not to be PSB’s and dropped while others were confirmed to be a PSB. Those deemed PSB’s were subsequently appealed and dropped.

In the summer of 2015, CRA vacated the remaining 3, meaning all 16 were resolved positively in the favour of those assessed. It is very important, however, to note that each case stood on its own and the individual circumstances of each were different and needed to be considered in each and every case.

While the appealed cases were one track towards better clarity, there was an ongoing dialogue with NACCB and other associations throughout to help industry better understand the legislation. This allowed us to advocate and communicate with members and independent consultants to run their business accordingly. To that end, in April of 2015, CRA issued new guidelines that help IT Consultants determine their employment status.

This article from the CRA is well worth reviewing and provides some clarification. If you have any other questions, please leave them in the comments below.