For this year, discover 9 must-know financial tips for Canada from your accountant. Find out how to take maximum deductions, plan for taxes, and get your finances in good shape.
When you don’t have a good accounting background, then managing finances can be too overwhelming. Accountants often know the best ways to help you stay financially healthy, and this applies to taxes, investments, and even business expenses. Here are nine things your accountant wishes you knew in Canada.
An accountant’s most significant issue accountants contend with is the lack of consistent expense tracking. The process is much harder if you have to wait until the end of the year to compile your receipts or invoices. Monthly and occasional tracking will make sure that your records are correct. That’s where simple accounting software like QuickBooks or Xero can help. If you keep track of your expenses, you’ll know what your finances are like. You will avoid missing out on deductions and decrease errors accordingly.
Canadians have a lot of deductions that they can take, especially individuals and businesses. Examples are home office expenses, charitable donations, medical expenses, and RRSP (Registered Retirement Savings Plan) contributions. But not all expenses are deductible. Many people don’t know what a legitimate deduction is and isn’t. If you’re self-employed, for example, you may be able to deduct portions of your home expenses, such as utilities or mortgage interest. And it’s worth asking your accountant what deductions you actually qualify for so that you use them to their fullest extent.
A common misconception is that if you’re getting tax refunds, then you’re doing everything right with your finances. In fact, a large refund probably signals that you paid too much for the year. Then again, owing a lot at tax time might mean you need to adjust your withholdings or quarterly tax payments. Having your accountant work with you in advance of the preparation will get you by without a surprise tax bill. Better to pay smaller amounts each year rather than pay off a large one in April.
Most small business owners in Canada think that by incorporating their business, they will automatically save more in taxes. But this isn’t always true. Income splitting or deferral are advantages that incorporation does offer, but there are costs and new responsibilities that comes with it, including more complex bookkeeping and annual reporting. The best wasy is to talk to your accountant to find out whether incorporation is right for your business and financial goals.
For business as well as your personal finances, having an emergency fund is essential. We, as humans, have learned that life can throw surprises at us due to sickness, economic dilemmas or some unexpected cost. Accountants say you should set aside so much money that you can live off of at least three to six months. Doing this will soften the blow should anything unexpected happen. You might, though, end up borrowing money at high interest rates, adding to your financial burden if you don’t have an emergency fund.
Canada’s two powerful tools for retirement savings include RRSPs and TFSAs (Tax-Free Savings Accounts). But waiting to start saving for retirement means you’re waiting awhile, and your investments will grow less the longer you wait, especially as there’s no real compound interest to work with. Accountants will tell you to keep making regular contributions to these accounts. Over time, small amounts can begin to increase. Other ways to cut your taxable income include adding money to an RRSP, which could also reduce your bill for that year.
As a small business owner or self-employed person, you really have to keep your business and your personal finances separate. Bookkeeping becomes easy, and you are not doing personal expenses along with the business expenses. Furthermore, this is useful – using a separate business bank account and credit card pretty much keeps things clear. It will also assist your accountant in finding business-related deductions and avoid confusion during tax time.
The tax law changes all the time, and the average person struggles to stay on top of it. But knowing about new tax regulations can help you save money and prevent any problems. For example, because of recent changes in Canadian tax laws, your eligible tax credits, filing deadlines or deduction limits may be affected. However, accountants are aware of those changes and can help you understand how new rules could impact you. Ultlimately, if you are proactive and ask questions and keep yourself in the loop, then it’s also helpful.
Lots of people think hiring an accountant is a pointless expense. They think they can do their own taxes or bookkeeping if they don’t think hiring an accountant is necessary for their business. That said, accountants can sometimes retain you more than their fees will cost. Tax laws are right up their alley, and they know tax laws inside and out to help them find deductions and credits you may have missed. At the same time, they offer strategic financial advice, for example, on how to set up investments and when to buy things in an expendable way just for tax benefit. Second, accountants can assist you in avoiding costly mistakes that may tarnish your firm by ending up with penalties or an audit.
Knowing these key things will help you manage your finances better and easier. A good accountant can help you keep your wallet safe by staying on top of expenses, planning for taxes and saving for retirement. Stay proactive, ask questions, and keep open communication with your accountant. The more educated you are, the better financial decisions you will make. But of course, a good financial life brings more peace of mind.