This blog post will specifically focus on the issue of how to choose a “good” accountant for tax returns.
Whether an accountant is “good” will depend on your expectations and your risk tolerance:
- On the one hand, you may want your accountant to prepare your tax returns in such a way that if you’re ever audited by the Canada Revenue Agency (“CRA”) the auditor won’t find any issues with your returns or financial affairs. In that case, your accountant will only be claiming expenses “by the book” – that is, 100% deductible and based on the receipts you have on hand.
- On the other hand, you may want your accountant to help your minimize your taxes. In this case, he is going to claim every expense that appears reasonable and he’s likely going to type up and have you sign a letter indicating that you, as the client, will be responsible to provide the CRA with supporting documentation. For these accountants, these types of tax engagements are more risk management engagements than anything. If you are willing to take significant risk, they can bring your tax payable down significantly, and there’s any pushback from the CRA (i.e., a Notice of Reassessment or a full blown audit), your accountant can argue the deduction with the CRA with about a 50/50 chance of success.
Notwithstanding the above, here are some tips to evaluate if an accountant is truly diligent:
- They have meetings with their clients nor matter how small the clients are. They call you in and review your returns with you personally. Pay attention in those meetings. If you see something that looks off, say something. They can explain it to you.
- If you are registering for HST, your accountant explains to you the difference between the Quick Method and Detailed Method and recommends to you one or the other. This is one way that you can tell if you have a good accountant.
- If you are a business owner, at some point, you will need to convert your business to a corporation to save taxes. If an accountant tells you to incorporate from the outset while your business has losses, he/she usually isn’t a diligent accountant unless there is some other reason for incorporating (e.g., professional liability, industry specific requirement, etc.)
Here are some tips if you want your accountant to prepare your taxes correctly:
- Have a separate bank and credit card account for business and personal. Buy personal things on personal cards, and business things on business cards. Don’t buy Starbucks coffee every morning and expect that to be deductible .
- Keep a log for your vehicle for when you use it for business. track the date you drove to clients, the starting location (address) and client location.
- If you are working from home, keep your home utility bills, your mortgage statements (showing both interest and principal), maintenance and property tax bills. Give them to the accountant. Give an estimate to your accountant of the space of your home that you use for your business
- Keep track of every instance that you transferred money from personal accounts to the business accounts , this is very important.
- Similarly, keep track of every time you transfer money from you business to your personal.
- Make sure your invoices are numbered sequentially. When you give the accountant the invoices, or if you use a system, make sure no invoices are missing.
- Keep track of revenue. As soon as you go above $30,000, call your accountant and schedule a meeting either by phone or in person to discuss HST registration.
This post is for information purposes only and should not be interpreted as tax advice or a legal opinion. Please consult with us to review your own particular circumstances.
© Copyright Jenny Lin, 2019.