There’s a reason why multi-millionaires like Oprah insist on signing their own cheques: savvy business owners stay on top of their finances. Yet many entrepreneurs make the mistake of blindly handing over their financial records to a third party for parsing. Indeed, a tax advisor can help young companies increase their tax deductions and improve cash flow. But how often are you asking hard questions about your company’s financial footing? Your tax advisor has the future of your business in his or her hands. Here are 4 questions you need to ask this tax season.
1. What changes have there been to Canadian tax codes?
If there’s one constant in the tax world, it’s change. Every year, the Canadian government makes sweeping changes to the way Canadians are taxed and the benefits they’re eligible to receive. However, “many people aren’t versed in reading the budget themselves, nor do they have time to go and find this information,” says Peky Tsang, a tax analyst with TurboTax Canada. For this reason, Tsang recommends that Canadian taxpayers ask their tax advisor about modifications to the tax system that might impact a small business owner’s tax bracket, pension plan or contribution limits. “You don’t need to know every detail but you do need to be aware if there are new measures,” says Tsang.
2. Should I incorporate my business?
Limited personal liability isn’t the only reason to incorporate your business. Small business owners that opt to incorporate can take advantage of a wide variety of benefits, including income-splitting with a spouse, paying yourself in dividends and paying a lower rate of federal tax. “There are fewer opportunities if you are just running a self-employed business as opposed to having a corporation,” says Tsang. The key is asking your tax advisor the right questions to determine if the perks of incorporating offset the pitfalls, which can include higher tax filing expenses and increased paperwork.
3. How can I continue to grow my company?
For long-term business success, be sure to look beyond year-end with your tax advisor. “You should be talking to your advisor about growing your business – where you should be five years from now,” advises Tsang. Developing a business plan, deciding on a loan to boost capital, deferring end-of-year-bonuses – they’re all decisions your tax advisor should help you make to prepare for a more financially secure future.
4. Are you still the right tax advisor for my business?
The best tax advisors are more than paid professionals – they’re partners with a vested interest in your success. Make sure your tax advisor is willing to meet with you throughout the year to reassess your financial standing and help you prepare for the next tax filing. In fact, as your business grows, you may discover that it’s time to find a new tax professional. Weigh your options carefully, advises Tsang. “If you’re hiring an employee, you don’t just hire the first one that comes through the door. Interview a tax advisor and ask for references.”