Now that I’ve grabbed your attention with this pic of what I see every morning when I get dressed, let’s talk business. As a high-income professional or business owner choosing the right professionals for dealing with your financial present and future is vital. Getting the right accountant is mandatory. Like underwear. Deciding whether an investment advisor will enhance your assets and choosing a good financial advisor are also important decisions, but more optional.
Choosing the right accountant has personal flavor and is vital to get right – just like buying the right underwear.
If you get it right, it:
- Is comfortable and supportive because it fits your….ummm…. personal situation.
- Helps prevent your assets from sagging from the gravitational pull of taxes and hopefully helps them grow unencumbered.
- Is elastic and durable – and will remain that way for years to come.
Get it wrong and you may find:
- Unwelcomed compression of your assets
- That you belatedly realize that you’ve had a “wardrobe malfunction” and are left with nothing but the shirt on your back.
Should I get an accountant or go “commando”?
This is a site about taking personal control of your finances. So, you may find it odd that I am not suggesting to totally go-it-alone. You need to be prepared for the occasional unexpected rogue gust of wind.
If you are self-employed or have a Canadian Controlled Professional Corporation (CCPC), an accountant is a “must have”. The advantages of a professional accountant are several – your brother-in-law or buddy doesn’t count unless they are a Chartered Professional Accountant (CPA). Even if your BIL or buddy is a CPA, a more arms-length relationship is desirable. You may not want your BIL or buddy to see your financial underwear – they may never look at you the same. Seriously.
Advantages of using an accountant:
#1 They can actually understand the Canadian tax code which has more wrinkles and dark crevasses in it than a geriatric buttocks.
#2 You don’t want to find yourself in one of those bad places in #1.
#3 CRA may come knocking on your closet door wanting to see your financial underwear.
If this happens (and it will), a CPA can handle in a few minutes what can take you hours of frustration. The CRA tends to target people with big tax filings because the odds of them recovering something juicy for the time spent is higher. They will also pursue items where they can ask some questions over the phone. Succinct answers with the right documents can resolve it quickly.
I have seen this first hand. Both in terms of the frequency of CRA inquiries and the way they don’t answer the phone when I call to respond. Conversely, my accountant’s phone call gets answered and the issue is taken care of promptly.
#4 Not only is the tax code a labyrinth, but it is also a labyrinth that is constantly changing.
As governments change the rules, or CRA changes its interpretation of them (the only interpretation that really matters), we need to be aware and comply. Whether we like it or not. There have been big tax changes for professionals recently. We are destined to see more as governments struggle to find ways to milk the cow to pay for their spending without having it kick them in the face.
#5 Tax planning can save you money. Big-time.
There are all sorts of wrinkles in the tax code that makes the nuances of what is the most tax efficient for everyone a bit different. This applies to whether to use salary or dividends to flow money through your corporation. Are there some strategies you can still use to income-split and reduce your family tax bill?
Planning the investment income in your corporation is especially important with the new passive corporate income rules. Understanding how investments in your corporation are taxed is important for planning your overall portfolio. You may even be able to tax efficiently flow dividends from stocks through your corporation. Your accountant won’t advise you about how to invest which is why you need to learn about these issues. However, they are tax experts and understand the nuances. Optimal results require collaboration from both sides.
I have personally used my accountant to help me with all of the above. As I have worked on this blog and learned more, I have asked better questions of my accountant, and re-designed my portfolio to be able to use better strategies. Knowing more has just made me appreciate what he does more and collaborate better for better results. I only wish I had done this earlier.
#6 Money is an exchange for time and comfort.
My accountant costs me about $2800/yr of pre-tax dollars. That gets my T4s and T5s paperwork done for the corp paying us, and our tax filings. He is responsive with questions/advice quickly throughout the year as dilemmas come up or he deals with CRA. You can imagine from my blog the kinds of questions that I ask. He is a patient man and we are probably a little spoiled.
This cost translates to about 9 or 10 hours of my time in dollar value, but it would take me days of time to do myself. If I knew how without messing something up. I did our personal taxes using software back when I was a salaried resident. While it only took me a few hours, I also know that doing taxes has a high aggravation factor and makes me super cranky. So, a CPA is of huge value for my money, my sanity, and my back – sleeping on the couch due to snapping at my wife during tax season sucks.
So, you’ve discovered that you need some underwear. Let’s go shopping.
For me, this discovery usually happens when I find my underwear drawer empty and my most favorite-ist, best-ist, “broken-in-ist” skivvies hidden under a pile of stuff in the garbage can. The shopping part usually happens when I remember this fact while in the Costco clothing section – hopefully without too much time elapsing between the discovery and remembering parts. Choosing an accountant needs to be much more deliberate.
Things to consider when choosing an accountant:
#1 Choose someone who has experience with or even specializes in the area of your business.
This can mean your specific field – like physicians, dentists, or other small or large businesses. It can also mean the type of structure you are using, whether that is a CCPC, sole proprietorship, or an empire of real estate holding companies. How many specific options you have may depend a bit on what is available around your area.
#2 Location of your accountant can be important.
Many things can be handled over email and the internet. However, personally, I like to have a sit-down conversation in person with my accountant at least annually. That dynamic conversation is very useful and efficient. I can also sign forms that need signing and the internet doesn’t work for the paper receipts, stubs, etc that I still deal with in my practice that my accountant has to sort through.
#3 How much of a role are they going to be playing in your practice or business?
If you want them to be super involved and help with business meetings, then the location will really matter. That level of service will also cost a lot more. If you want them largely for your taxes and tax planning advice, then it will cost much less and geography may not be as important.
#4 Dropping off a shoebox of receipts is a bad idea.
Accountants can charge by the hour and can do everything from basic data entry of revenue/expenses to taxes. Chances are you can pay someone much less for simple data entry. It is even better to income-split by having a lower income family work for you. Not only do you save on costs and lower the family tax bill, but people with a vested interest in the family income also tend to be very diligent.
#5 Some accountants are more riskée than others.
Some will be safe and conservative – like a set of starchy whitey tighties. Their tax advice may cost you more in taxes, but keep you out of trouble. Others may be as aggressive as a banana hammock. That may save some taxes, but the CRA may decide to come and give you a wedgie. You need to find an accountant who understands both sides of that equation and gives you a fit that you are comfortable with.
Tips for the search for an accountant:
#1 You can search via professional associations.
This can help if you are really stuck not knowing where to start. It at least provides a floor for qualification. However, you would also want corroboration either with references or preferably from people you know and trust who are similar to you.
#2 Talk to people who are similar to you.
In my case, I found out about my accountant by talking to a physician from a specialty with a similar earning range and practice type to mine. I also knew that physician paid attention to their finances and was honest in terms of integrity and a bit more towards the conservative end of risk-taking. They were also someone who would give an honest critical opinion of the good and bad.
If you don’t have that kind of connection in your area, the Physician Financial Independence Canada Facebook Page is a great resource. It has thousands of physicians from across the country who care enough about their finances to have signed up. It is a closed group available only to licensed physicians and a great place to put feelers out for recommendations.
#3 When you think you have a match, meet them and ask the right questions.
Ask about the five above items/things to consider from above to get a feel for how they fit for you. Openly discuss what you are looking for in terms of services, what they offer, and the costs. Trying on underwear for a fit in a store is generally frowned upon. Conversely, seeing if your prospective accountant is a good fit before buying is imperative.
Clever analogy. I like it. I always did my own taxes, but when I started earning more, I thought I would see what the accountant could do for me. It turned out, not much in my case (two paychecks and a bit of independent contractor work). I asked him about a backdoor Roth IRA, and he’d never heard of it. So, I’m back to doing it myself. Keep up the good work!
Thanks for your comment Firsthabit. Your are also my Firstcomment!
I totally agree. For straight forward taxes, it is well worth your time to do it yourself. Earning more can still mean simple taxes for many – just more zeros. Around my neck of the woods -disproportionately more zeros in the tax owing part unfortunately 🙂
I only changed tack when I incorporated and my taxes got really complex. Your discovering knowledge gaps in an accountant is eyebrow raising, but illustrates that like in any profession there are some who are better than others – accounting included. It makes doing your own homework, like reading these kinds of blogs, important. I have been able to raise a number of different approaches to my own accountant, but have yet to stump him and he has redirected me to keep on track a number of times. Picking an accountant who is not only qualified, but that has experience with your specific type of business/situation is key.