Blog https://www.melaniegesy.ca/ en-us Mon, 3 Oct 2022 00:00:00 MSTimages/header.jpghttps://www.melaniegesy.ca/ Bookkeeping or accounting? https://www.melaniegesy.ca/Blog.asp?id=78 Mon, 3 Oct 2022 00:00:00 MST

It doesn't matter what size business you have, there'll be books to keep. Do you know if you need a bookkeeper or an accountant? Many people don't know the difference. 

Because the terms have no legislative meaning in Canada, anyone can call themselves an accountant or bookkeeper. The only thing that is protected is the term Chartered Professional Accountant (CPA). 

Sometimes bookkeepers and accountants do the same things, but it's the skill level that's different. A bookkeeper records your daily financial transactions and organizes your business data. Accountants take that information and do 'stuff' with it. There are different types of accountants and that determines the services they provide. They also can act as consultants for your financial questions and are more qualified for tax time issues. They both offer support, but at different stages of your business financial situation.

Bookkeepers:

Bookkeeping doesn't need formal education or credentials, however certifications do exist if the bookkeeper wishes to stand out from their competitor and provide better service. They are typically used for small businesses on a monthly basis. They need to be accurate and have a basic knowledge of financials, but they don't need to know tax planning strategies.

Accountants: 

Accountants usually have some formal education like a university degree or college diploma specialized in accounting. They tend to work internally at a business recording the daily transactions and preparing reports for analysis etc. Those that are interested in working in public accounting have to get a CPA designation to do all the things that I do.

Chartered Professional Accountants:

Chartered Professional Accountants require a university degree and completion of a professional training program. This requires 30 months of related work experience, more education and tough exams, but allows the person to use the title, as well as earning the trust of more clients. CPAs, like myself, work in public practice and have multiple clients and typically prepare the tax returns and/or issue financial statements with either a compilation, review or audit engagement report, and other analysis or services as agreed or requested. Other CPAs can work internally in a business or in government positions that take full advantage of the skills and experience they have.
 

Accountants can do bookkeeping, but bookkeepers cannot do the extra work that accountants do. However, while I say they "cannot do the extra work", some bookkeepers also provide some tax services. In my opinion, they should not be providing tax services because they might not have taken the required tax courses. Canada Revenue Agency doesn't require the tax preparer to be a CPA, so there are some bookkeepers and accountants that offer that service.

If you have any questions about this, please let me know. I would be happy to clarify my services and help you out. Contact me today!

 

 

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Should you incorporate? https://www.melaniegesy.ca/Blog.asp?id=79 Thu, 7 Jul 2022 00:00:00 MST

Your small business has been growing (or you are just starting) and you could be wondering when you should make the leap... and incorporate it.

There are pros and cons to doing this and if you do it too early, it may not be worth it. Now, if your business is bringing in more than you need to enjoy a good lifestyle, then it may be time. For example, $100,000 may be the number you're waiting for, but it will be different for everyone. You need to consider the costs related to incorporating, as well. It may be beneficial to remain a sole proprietorship, if you can't justify them. 

 

Some advantages to incorporation:

  • The big one... tax deferral (and some small tax savings). Corporations typically have a lower tax rate than a person would. The great thing is that if you save taxes, you can use deferred tax dollars to grow your business. An example would be:
    • Jim operates a business in Alberta that earns $160,000/year. Jim only needs $60,000/year to live well. As a proprietorship, he would pay personal taxes on the full amount at about 28% (the average rate for that income level). However, a corporation would only pay 9% tax.  You can then withdraw what you need and only pay personal taxes on the amount you withdraw. The savings/deferral occurs when you can leave the extra income in the company.
  • Income splitting. While this isn't as much of an advantage since the tax laws changed in 2018, it is still a good way to save money. The spouse (or other family members) needs to be an active member in the business for this to work to your advantage.
  • Limited liability. This is for security in the instance that someone wants to sue you. On your own, this would effect you directly. As a corporation, they can only go after the business and it's assets.
  • Estate Planning. You can transfer assets to other people, should something happen to you because it is a separate entity.

Disadvantage would be:

  • Costs: 
    • Tax time: As a proprietorship, your business income is included as a schedule on your personal income tax return, which means you only have one tax return to file. If you have prepared your own personal tax returns in the past, you can continue doing so if you are comfortable with it. Or can you hire an accountant to prepare your personal tax return. When you incorporate, the company has it's own corporate income tax return which is a lot more complicated and follows a completely different part of the Income Tax Act, so you will need to hire an accountant to prepare the return for you.
    • Incorporation: There are costs involved for you to incorporate. I always recommend that you hire a lawyer to incorporate the company and set up the relevant documents. You can incorporate it yourself, but that could end up costing you more in the long run it's not done properly and you have to fix it later. Always cheaper to do it right the first time.
  • Record keeping: This will be way more involved for a corporation. Minute books, additional forms and shareholders mean increased bookkeeping, legal and accounting fees.
  • Losses: If your incorporated business has a net loss for the year, you can only claim the loss against past or future corporate earnings. If you have a loss as a sole-proprietor, you can claim that loss against other income in the same year, or from future personal earnings.
  • Taxes: If you incorporate before your business earnings are high enough, it could mean that you will pay more taxes at the end of the year. As an individual, there are tax credits you can use. This is a lot more rare, but it can happen depending on your personal income situation.

 

Bottom line... it can be difficult to know when the best time to incorporate is. Don't just assume that it's the best way to save taxes because it doesn't always work out that way.

Contact me for some advice on your particular situation. Together, we can figure out the best timing.

 

 

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