3 QUESTIONS: So You’ve Been Selected for a Tax Audit

3 questions: so you've been selected for an audit

 

As you may know, sometimes individuals or businesses are selected for an audit by the Canadian Revenue Agency (CRA). What you may not realize are the varied consequences that can occur should you not be adequately prepared. For a start, consider Liu & Associates’ three most common questions about tax audits. After that, bring your questions or concerns to one of our financial professionals today!

 

“How was I selected for an audit?”

CRA agents do not select audit candidates at random, they use a system of risk assessment that identifies returns that could be considered “high risk.” Some reasons you or your business may be selected for an audit are:

  • Finances unlike people or businesses in similar location and industry;
  • Return is meant to circumvent or avoid taxation;
  • Business always reports a loss;
  • Return has errors or instances of poor comprehension.

“What is expected of me in an audit?”

If you are selected, the law does require you to cooperate with your auditor– part of this is always keeping adequate financial record, whether you are chosen or not. Read your initial notice carefully and collect any records request of you, filling in any holes with supporting documents such as account statements. Always be familiar with your rights as a taxpayer and consider the appeals process carefully after your final assessment.

“Do I need to hire a professional?”

You may be skeptical about taking an accountant’s opinion, but we cannot stress the advantage you gain by employing a financial professional during an audit. Your ideal candidate should be deeply familiar with taxation and the associated laws– they should also be able to outline both best and worst case scenarios. If you are concerned with being able to afford an accountant with CRA fees and penalties on the horizon, proper organization and experience can actually save you money in the long run.

The above three questions are only a brief introduction to the world of tax audits and their consequences. If you or your business have been selected by the CRA, do not hesitate to contact Liu & Associates!

How to choose an accountant for your small business

how to choose an accountant for your small businessSmall businesses face unique challenges– not only in their own markets, but internally and structurally as well. Budgets must be met and bills must be paid at any company, though for a small business it might mean the difference of being around next year. If you own or operate a small business, it is wise to protect your finances with sound investment and prudent choices. Out of all of these, employing or contracting an accounting professional is one of the most efficient ways to stretch your dollar. Keep reading for Liu & Associates’ guide to choosing an accountant for your small business.

IN-HOUSE vs CONTRACT

All businesses need at least a bookkeeper to be financially viable, but often in small business that role may be filled by an owner, a partner or even a family member. As businesses grow, so do their needs– owners and operators will eventually have to decide on one of two options: hiring an in-house financial professional or contracting the services of an individual or firm. There are advantages to both… A salaried accountant or bookkeeper is always on the job; although third-parties can be hired on a case-by-case or renewal basis.

AN IDEAL CANDIDATE IS…

…Whatever fits your needs best! It may be frustrating to read, but only the owner or operator of a small business can decide. Employees need to fit into your culture, but they can also grow with your business. Firms and contractors are flexible, but you may outgrow them (or they may outgrow you). These are just some of the many facets that differ from in each choice and neither are mutually exclusive.

QUICK TIPS

The following are some helpful ideas when choosing an accountant for your small business:
Seek referrals from similar-sized businesses;
Interview multiple candidates;
Be prepared to answer questions about your business;
Prepare questions unique to each candidate;
Negotiate fees or wages before work begins;
And much more…

…Questions? …Concerns?

Contact or visit us today: the small business accounting experts at Liu & Associates!

How Do I Change Accountants?

Two women sitting on a couch having a meeting

Whether for your personal finances or a business, employing an accountant is first and foremost a relationship. Just like in our private lives, professional relationships have their ups and downs– they also evolve over time. You may find that you employ several accountants over time, which is normal for both you and the financial professionals. Keep reading for Liu & Associates’ guide to when, why and how to handle this kind of change.

When or why would I change accountants?

People change accountants for many reasons. You may be simply dissatisfied with the level of service you received– but more likely, your needs have evolved beyond your accountant’s specialization. Just so, your accountant’s scope may have changed to a point that your needs are difficult to prioritize. Either way, this decision is usually not personal! If you are dissatisfied, it can be valuable to discuss this with your current accountant before severing the relationship.

How do I cut ties with my current accountant?

So the time has come: your first step is to inform your current accountant that their services are no longer needed. If at all possible you should stay on good terms, but your new accountant can communicate on your behalf if necessary. Your current accountant should then forward a disengagement letter— the professional document that outlines important information and dates related to your finances.

How do I transfer to a new accountant?

Firstly, your new accountant should provide you with a letter of engagement– the outline that establishes the parameters of the professional relationship. Once they acquire professional clearance, your new accountant can proceed with registering your info, assessing your file and setting out their financial plans moving forward. Always negotiate fees and finalize other major decisions before you authorize any financial professional.

The above three entries only summarize the process of transitioning your accountancy services. Be sure to use due diligence any time you make a choice about your finances, it can have serious consequences. Questions? Concerns? Contact or visit the pros at Liu & Associates today!

3 Misconceptions About Accounting & Accountants

Accountant wearing a yellow shirt working on a computer

We see it all the time from corny comic strips, bad movies, and hacky stand-up comedians– if you need a boring job to make fun of, go after the accountants! Most people perceive accounting as a dull ocean of cubicles, filled with bespectacled pencil pushers that love nothing more than using an abacus. In truth, accountants are as diverse and multifaceted as professionals across all industries. Keep reading for three of the most common stereotypes about accounting and accountants, then educate yourself with the truth from the pros here at Liu & Associates.

I know math– I can do it all myself!

First of all, accounting is more than just math! While arithmetic skills are essential to a good accountant, the real strength of financial professionals is organizational skills, analysis, and logic. In fact, complicated maths like calculus are rarely, if ever, used in the industry. Additionally, beware the promises of do-it-yourself accounting services and software– they can give you a false sense of security that might lead to costly errors or omissions.

Accounting is expensive, only big businesses can afford it

The fact that big businesses all have accountants means one thing: they understand the importance and value of proper finances. Anyone can benefit from accounting– no matter the size, scope or scale of your needs. While it is true that not every accountant is right for you, that is why there is such a wide range of services available. From affordably basic to fully custom-tailored, there is a financial professional that suits you!

Accountants only fill-in spreadsheets and file taxes

As with most of these misconceptions, there is a grain of truth to the myth. Yes, spreadsheets are critical to accounting and any good accountant knows their way around a tax return. Ultimately though, spreadsheets are just a tool– only the talent and skill of a financial professional makes them sing. Likewise, filing taxes is merely a cherry on the top of the long list of intricate finance and business decisions influenced by accountants’ advice.

You may have believed some of the misconceptions and myths above, but hopefully, this article has helped clear the air. Questions? Concerns? Contact us at Liu & Associates today!

How to Choose an Accountant for Taxes

how to choose an accountant for taxes

 

While many people may choose to do their own taxes, there are a number of reasons why someone would opt to hire an accountant. Whether your taxes are particularly complicated, or you feel overwhelmed or uncomfortable by the very thought of taxes, an accountant can help everyone. There are a number of different factors to consider when search for a tax professional. Here are a few things to consider in your search for a tax accountant.

 

What type of tax professional is best for you?

During tax season, you will probably notice a number of pop-up tax preparation chains in everywhere from the mall to a university campus. While convenient, these chains don’t always offered the most seasoned professionals. Here are the different types of tax professionals you should be aware of:

  • Certified public accountants have passed rigorous testing and certification requirements in order to obtain their title. They are also able to represent you in the event of an audit or collections. CPAs have a tonne of other financial experience as well, so they can help with other financial situations as well. Not every CPA is an income tax expert, so be sure to ask about their experience.
  • Enrolled agents also much pass testing and background checks in order to gain their title. Unlike CPAs, they are specialized specifically in taxes, including complex tax situations. They even need to take a test every three years to ensure they are up-to-date in all of the latest tax regulations. Like CPAs, they can represent you in the event of an audit or collections.
  • Tax attorneys are lawyers specialized in tax law. They are most often used for highly complex tax matters such as estate tax returns of if you need representation in Tax Court.

Experience

Not all accountants are tax experts. If you’re shopping around, it’s important to ask accountants about their previous tax experience and areas of expertise. This is crucial if you need an accountant with experience in certain areas such as home businesses or other circumstances that could complicate taxes. Any licenses or accreditation that help to support their skills and knowledge are also beneficial.

Fees

Cost is top of mind for most people, so be sure to ask about fees! Find out the hourly rate and get an estimate for how long the return will take. Not every firm will charge the same rate, so be sure to ask. Talk to potential accountants to learn if there are things you can do in order to keep the fees down (i.e. organizing documents). Finally, be sure to ask what is and isn’t included in their fees. Find out the costs for “extra” or additional services so that there are no surprises when you get the bill.

Don’t be afraid to ask questions, take notes, and compare your options. Above all else, be sure that you are comfortable with the accountant you choose. Whether you need help with a simple return or you have a complicated tax issue, contact Liu & Associates today!

4 Tips For Working With An Accountant

7 tips for working with an accountant4 Tips for Working With an Accountant

Like any professional relationship, it is key to understand that an accountant who works with you is more valuable than an accountant who simply works for you. Hiring an accountant does simplify certain financial realities and complications, but adding a small amount of effort on your part can lead to exponentially better results. Keep reading for Liu & Associates’ favourite tips for working efficiently and courteously with an accountant.

 

#4 Meet and greet. 

Like any product or service, it is important to determine the quality and fit of a financial professional before you invest in anything long-term. Build a list of potential accountants or bookkeepers by reading reviews or asking for recommendations– narrow this list down based on the size of your needs and any shared values. The best candidate should be happy to have your business while prioritizing your needs and acting in your best interest.

#3 Buyer beware.

Sometimes the first meeting with your first choice will go very well. And other times, it does not. It is important to know that if you are paying for accounting or bookkeeping services, you are not obligated to continue past that first appointment. Beware of high-pressure approaches and anything that seems “too good to be true.”

#2 Sharing is caring.

Financial records contain sensitive information, but encryption and privacy standards mean the entire industry has embraced the digital age. Not only is private cloud storage convenient and secure, but up-to-the-minute access to your data means a skilled accountant can compile, classify and coordinate your finances on the fly.

#1 Money talks.

Open and honest communication is a great tool in any relationship– financial professionals are no exception! If you have any questions or concerns about your finances, bring them up as soon as possible with your accountant so they can customize their services to your needs. Do not be afraid to offer constructive criticism, as long as it is delivered in a thoughtful and respectful manner.

While the tips above are useful, there are many more aspects to building an in-depth relationship with a financial professional such as a bookkeeper or accountant. Whether you are a small business client or a large-scale employer, do not hesitate to speak with Liu & Associates for guidance with your finance. Questions? Concerns? Contact us today!

Benefits of Using Quickbooks for Your Small Business

benefits of using quickbooks for your small business

Managing the accounting for a business of any size is no small task. While large corporations have the benefit of an entire finance department, small business owners are often left to complete everything themselves. Luckily, accounting software has come a long way and is a great way for small businesses everywhere to make their accounting easier and more efficient. Quickbooks is the widest user and most popular accounting software thanks to it’s easy to use interface and range of features. Read on as Liu & Associates highlights some of the benefits of not just using Quickbooks, but accounting software programs in general.

 

How Can Quickbooks Help?

Quickbooks can help you with pretty much every aspect of your small business’ accounting, including:

  • Invoicing
  • Payroll
  • Accounts payable & receivable
  • Reporting
  • Cash flow management
  • And more!

Learn more about how Quickbooks works and how it can help your business.

Benefits of Going Digital

Many business owners can be hesitant to take their accounting online, but don’t worry, accounting software programs are all about making accounting user-friendly. They are laid out in a way so that anyone can understand how to get started. Along with being user-friendly, some other benefits of using an accounting software include:

  • More time to focus on your business. Digital accounting is going to speed up your bookkeeping immensely, giving you more time to focus on other areas of your business.
  • Increased accuracy. Humans are bound to make mistakes. By leaving the calculations to the computers, the chances of an error are greatly reduced.
  • Simplified tax returns. Quickbooks allows you to have one central location where all your information lives. When it comes to tax time, you won’t find yourself searching for the numbers you need. Quickbooks even makes it simple to share information with your accountant.
  • Security. Keeping sensitive information out in the open puts you and your company at risk. You can rest easy knowing that your records are kept behind a password-protected software that is up to date on the latest online security trends.

Want To Learn How To Master Quickbooks?

Whether you’re just starting out, or looking to master Quickbooks, Liu & Associates offers customizable Quickbooks training to suit your needs. Make sure you’re getting the most out of your accounting software – book your training today!

Consequences Of Not Filing Corporate Tax In Alberta

The hands of two accountants working on paper using a calculator

By not filing your corporate tax return on time (or at all), you’re opening yourself up a number of different penalties from the Canadian Revenue Agency (CRA). Join Liu & Associates as we highlight a few of the penalties below. Keep in mind this list below is by no means exhaustive. For a complete list of corporate tax penalties, visit canada.ca.

Failure to File

Corporate tax filing deadlines vary depending on your corporation’s fiscal year end, as well as what type of corporation it is. A corporation has to file their return within six months after their taxation year end, and payment is due either two or three months after taxation year end.

Generally speaking, the penalty for late filing is 5% of the unpaid tax that is due on the filing deadline, plus 1% of the unpaid tax for each month that the return is late, for up to 12 months.

A larger penalty will be charged if the CRA issued a demand to file the return and assessed a failure to file penalty in any of the previous three tax years. This penalty is 10% of the unpaid tax when the return was due, plus 2% of the unpaid tax for each month that the return is late, for up to 20 months.

Instalment Penalty

When the installment interest is more than $1,000, the CRA may charge an installment penalty. The penalty amount is calculated by subtracting the greater of $1,000 and 25% of the installment interest calculated if no installment has been made for the year. The difference is then divided in half to get the final penalty amount.

Large Corporations

A corporation is considered to be a “large corporation” is their total taxable capital employed in Canada at the end of the tax year by it and its related corporations is over $10 million. You can identify yourself as a large corporation on your T2 form.

If a large corporation fails to file their return, a penalty can be charged for each month that the returns are late, for up to 40 months. The penalty is calculated by adding up 0.0005% of the corporation’s taxable capital employed in Canada at the end of the year and 0.25% of the Part VI tax payable by the corporation (before deductions).

False Statement or Omissions

The CRA can charge a penalty if a corporation, either knowingly or due to gross negligence, makes a false statement or omission on their corporate tax return. The penalty for a false statement or omission is the greater of either $100 or 50% of the amount of understated tax.

The Exceptions

It’s good to note that the CRA will sometimes consider waiving penalties or interest if the reason for a late filing or not paying is beyond the taxpayer’s control.

Liu & Associates Can Help

If you need help with your corporate tax return, give the experts at Liu & Associates a call. We will work with you and your company to make sure your corporate tax matters are as smooth and cost-efficient as possible.

SR&ED: 5 Things To Know

Sr&ED 5 Things to knowScientific Research and Experimental Development is a mouthful, but shortened to SR&ED or “shred” it may be familiar to business owners. A federal program designed to incentivize industry with tax credits, SR&ED and its benefits are enforced by the Canada Revenue Service (CRA). Most of the time, claims and reviews are a simple process– but the following are five brief tips from the experts here at Liu & Associates.

#5 Who can apply? Individuals, trusts and foreign-owned corporations are all eligible for SR&ED and its incentives. Canadian-owned private corporations can claim these benefits at an even higher rate thanks to lawmakers’ efforts to encourage local innovation.

#4 Prescribed proxy amounts (PPA) are used in case you are not prepared to claim all SR&ED overhead and expenses (traditional method). Using the proxy method, your PPA is calculated against the salaries of all staff involved with SR&ED.

#3 Supporting documentation may be needed if your business’ SR&ED claim is flagged for review by the CRA. Always keep any documentation that could support your claim, including but not limited to accounting records, prototypes, financial records and even photographs.

#2 Investment tax credit (ITC) is what is generated by a successful SR&ED claim– it can reduce your business’ taxable income. Select cases may even be eligible for partial refunds paid for by ITC.

#1 Tax deduction is tied directly to what your company spends on SR&ED. Third party payments; overhead and material budgets; salary, wages and contracting costs… All of these could result in a tax credit or an ITC refund.

These tips are only a summary of the details surrounding Scientific Research and Experimental Development. As a federal tax credit program, there are intricacies that should only be handled by your business’ chief financial officer or a trusted accountant. If you have any questions or concerns about SR&ED, contact or visit us today at Liu & Associates!

Business Tax 101: Why/When Do I Need To Apply For A GST/HST Account?

 

In Canada, most goods and services are eligible for at least one sales tax: the Goods and Service Tax (GST)– some provinces are also subject to the Harmonized Sales Tax (HST). Most Albertans mentally factor in the 5% GST charge to day-to-day transactions, but there is more pressure on businesses to follow federal regulations. If you own or operate a business, it is vital that you do not overlook sales tax requirements. Review the Liu & Associates crash course on GST/HST accounts and contact us today with any questions or concerns.

 

WHAT IS A GST ACCOUNT?

In order to track business taxes, the Canada Revenue Service (CRA) maintains a database of business numbers– known in this case as GST numbers. Your number corresponds to your GST account, through which your business will remit taxable amounts and file returns. Collecting and charging GST falls to the business and they are responsible for mistakes, oversights and any resulting consequences.

DOES MY BUSINESS NEED TO REGISTER?

Regarding GST, businesses fall into two categories: those that are small suppliers and those that are not. The following summarizes the small supplier threshold of taxable supplies for various types of business:

  • Most businesses are considered small suppliers if they do not exceed a $120,000 yearly threshold amount;
  • Most charities, public institutions and service bodies are considered small suppliers if they do not exceed a $200,000 yearly threshold amount;
  • Two notable exceptions are non-residents and taxi/ride share operators, who often qualify as small suppliers regardless of threshold.

AS A SMALL SUPPLIER, WHY SHOULD I REGISTER?

Small suppliers are not legally obligated to collect, charge, remit or file any GST amounts. Still, there can be a major advantage to voluntarily registering for a GST account as a small supplier. Think of the taxes your business pays on expenses, raw material costs or the services it uses. Much of this GST can be refunded as input tax credit if you have already started an account with the CRA, regardless of your business’ size.

The details above are only a brief summary of the complex and thorough GST/HST regulations set out by the government. If the growth and health of your business is on the line, always consult with professionals like the team here at Liu & Associates. Contact or visit us today!