Personal Accounting Services Archives - Page 3 of 8

How To Manage An Inheritance

an-accountant-helping-a-client-manage-their-trust-while-sitting-outside-of-a-shop Coming into a lump sum of money suddenly, be it big or small, can be jarring to say the least. A sizable inheritance can represent a life-changing opportunity, if managed properly. Follow these five tips to make sure you’re managing your money smart and effectively to keep you financially stable for years to come.

1. Take A Step Back

Because an inheritance usually comes with a loss, it’s important for you take time to deal with your grief. You don’t want to be making any major financial decision when you’re in an emotional haze.

The second thing you need to do is take a reality check. Before you go quitting your job or booking a flight to Europe, you need to think realistically about what your inheritance is going to do for your life. $90,000 might seem like a lot at the time, but that’s not enough to sustain you and your family for 25+ years. You need to consider whether your new found fortune is going to rewrite your financial goals, or simply just help you reach some of your existing goals a bit sooner.

2. Pay off Debts

Using your inheritance to pay down or pay off any current debts can help you to reduce your expenses and save you money that would go towards interest down the line. When choosing which debts to pay off first, always pick the loans with higher interest rates first, like credit cards, personal loans, or car loans, before paying off a lower interest rate loan like your mortgage.

3. Prioritize Your Goals

Identifying your financial goals will help you determine the next steps you take with your money. Cleaning up any debt should always be a top priority, followed by creating a retirement nest egg. After that the sky’s the limit; others goals may include:

Setting up a trust
Starting a college fund for your children
Contributing to charity

Determining what your financial goals are will help guide you in the types of investments you make, or the types of accounts you open.

4. Splurge Thoughtfully

It’s okay, and even encouraged, to have a little fun with your new money! Depending on the size of the inheritance, your “splurge” will look very different. It could be anything from some new shoes to a new house! Remember: reason and moderation are what it’s all about. Just because you can buy 10 swimming pools doesn’t necessarily mean that you should!

5. Hire Some Help

Depending on the type of inheritance you received (ex. Investments, life insurance, etc.) there may be some hidden taxes you are unaware of. A financial advisor or accountant can help you create a financial plan and deal with any tax implications that might come your way. They will help you understand your inheritance, and can assist you in managing it moving forward.

For help managing your inheritance, trust the team at Liu & Associates. Call today to book an appointment.

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COMPANION CREDIT: Can Pet Expenses be Tax Deductible?

Everyone thinks their pet is the best… and they are right! This is common knowledge for most animal lovers and owners, but can your animal companion actually earn you tax credits? The short answer is no: Bella, Fluffers or Mr. Pickles likely does not qualify, no matter how good they are at cuddling or looking cute. Still, there are some cases where a portion of buying, training or feeding an animal can be used as a deductible. Keep reading for Liu & Associates’ guide to some of these benefits!

ANIMAL THERAPY OR SERVICE ANIMALS

Usually listed under medical expenses on income tax forms, you may qualify for benefits or credits if you or a dependent requires the assistance of an animal. Consider submitting the necessary receipts if you pay for regular animal therapy or the purchase, training and upkeep of a service animal.

FARM ANIMALS

If you own livestock, herding animals or guard animals in order to operate a business, you very likely can claim a portion of their initial purchase as well as costs of caring for them. Optimizing your tax return is vital for the successful operation of ranches and farms of any size or scale, so do not overlook the benefits and credits available to you.

ANIMAL TRANSPORTATION

Moving residences is one of the rare cases where your family pet(s) could earn you an income tax credit. Since moving means your pet(s) and the necessary supplies need to come with you, there are some accommodations for reporting any related costs. Also: if your business relies on transporting your animals, a portion of your fuel and maintenance costs should always be claimed as deductible.

CHARITABLE DONATIONS

If you give to shelters, rescues or other non-profit animal welfare organizations, always request a tax receipt when eligible. A charitable donation is one of the easiest ways to express your love for domestic animals while earning income tax credit. Costs related to fostering and sponsoring animals for certified organizations may also qualify.

JOBS WITH DOGS

Not just limited to dogs, animal ownership is a multibillion-dollar, worldwide industry– there are countless industries and professions that thrive within it. Always claim any eligible expenses directly related to your job! For example: a dog walker can claim a portion of their fuel and maintenance costs, if they use their personal vehicle to transport dogs to and from their clients’ homes.

The five scenarios outlined above are only some of the ways owning or caring for an animal could lead to income tax deductions, credits or benefits. For a full understanding, contact or visit Liu & Associates today with any issues, complications or concerns!

Family Trusts 101

One of the most common misconceptions people have about family trusts is that they’re only for incredibly well-off families. That couldn’t be further from the truth. Keep reading for our introduction to family trusts and how they can be beneficial to you!

What is a family trust?

A trust fund or family trust is a legal agreement two parties in regards to assets to be passed on. A trust can contain money, stocks, real estate, and/or other assets.

There are three parties involved in establishing a trust fund:

The settlor or trustor – this is the person or entity who establishes the trust fund with the initial contribution. This can be a company, family member, or even a family friend.
The trustee(s) – the person, people, or entity responsible for the management and administration of the trust fund. Typically this is a financial institution or legal entity, though in some cases it may be a family member.
The beneficiary/beneficiaries – The person or people that will receive the benefits of the trust, usually children and/or grandchildren of the person who established the trust.

While the specific roles of each party will vary between different types of trust funds, they are required in every situation. There is a huge variety in the types of trusts available, including living trusts that become effective right away, revocable trusts that allow you to keep control and ownership of your assets, and irrevocable trusts which allows you to transfer ownership and control of assets over to the trustees.

What are the benefits?

There are a number of different benefits for setting up a family fund for both the settlors and the beneficiaries. For certain types of trusts, once an asset is placed in the trust it no longer belongs to the settlor. This means that the settlor would not be required to pay income tax on money made off of those particular assets. For beneficiaries, there is a similar benefit. Since assets within the trust do not belong to them, beneficiaries would still be eligible for things such as student aid.

One of the greatest benefits may be a sense of security for the beneficiaries. As opposed to handing out a single payment that could be wasted and spent irresponsibly, a trust can be set up with certain stipulation for beneficiaries. For example, you can dictate that the beneficiaries may receive a monthly or yearly payment as long as certain conditions are met. Furthermore, you can make specific guidelines on how the money can be spent (education, investments, etc.). A family trust is a great way to ensure that your children and grandchildren receive the maximum benefit from what you’ve passed on to them.

Is it right for me?

As mentioned earlier, trust funds are not exclusively for those who are well-off. Anyone who has assets that they would like to protect for future generations would benefit from at least exploring the option of a family trust. There are limitless options for family trusts, allowing you to choose something that best meets the needs and wants of you and your family. Don’t be afraid to explore your options!

For more great advice on family trusts and estate planning, contact the team at Liu & Associates today!

7 Most Forgotten Tax Credits, Benefits and Deductions

While freelancers and business owners may be quite familiar with tax credits, benefits and deductions– it is no guarantee that you are getting everything that could be owed to you. Also, these opportunities often apply to anyone filing taxes… even if they did not earn any professional income in a given year. Keep reading for our top seven most forgotten and overlooked tax credits, benefits and deductions!

#1: Income-related costs

No matter how you earn your living, if you make taxable income– you are eligible to claim certain costs incurred in pursuit of it. While self-employed taxpayers are familiar with the many ways to claim a tax credit, you should not overlook them if you work for an employer. Commuting costs, business lunches and qualified expenses are just some the more commonly claimed credits.

#2: Mandatory expenses

If your profession requires you to pay for certain privileges or qualifications, you may very well be able to claim all or a portion as an income tax credit. Examples of such expenses are union dues, licensing exam fees and professional certification payments.

#3: Interest paid on student loans

This one is easier to remember, as the national and provincial student finance authorities issue tax forms to anyone paying back student loans. To make sure you do not miss out on these deductions: always keep your current mailing address and contact information on record.

#4: Credits for parents

Parents are busy people! It is understandable why taxes are not at the front of your mind, but credits and benefits can mean more money to raise your family. Always file your taxes to qualify for annual benefits for dependent children and be sure to review eligible credits related to childcare expenses.

#5: Medical costs

Tax credits can be earned through your own disability, the disability of a dependent, injury or illness, dietary requirements and many other conditions. Your health should be your first priority, so make sure you file your income tax by the deadline every year. The burden of your medical costs can be reduced by keeping your information current and providing the required documents.

#6: Moving deductions

Have you moved this year? Did you hire movers, rent a truck or use your own vehicle to transport your belongings? You are likely eligible to claim income tax credits for a percentage of your expenses– businesses may also qualify!

#7: Homeowner credits

Owning a home means you have a lot of responsibility, but just like maintaining and up keeping the property: your finances should always be in order. This does not mean paying your mortgage in record time, but it does mean taking advantage of every credit and benefit available to you. There are government programs that reward first-time owners, as well as those renovating or upgrading their existing homes.

The seven tax credits, benefits and deductions above are just a few of the most commonly forgotten– contact or visit Liu & Associates today for a comprehensive review of your eligibility.

RESPs: What you should know

It’s no secret that the cost of a university education continues to increase every year. Planning for your child’s education now allows you to save as much as possible to give them a step up when it comes to post-secondary costs.

What is an RESP?

RESP stands for Registered Education Savings Plan. These are plans that allow parents to put aside money for their child’s education. RESPs aren’t limited to just a child’s parents. Any adult is able to open up and contribute to an RESP on behalf of a child.

The first iteration of an RESP dates back to 1974. The program was overhauled in 1998, with the Canadian government now contributing to RESPs as well through the Canadian Education Savings Grant (CESG). Some provincial governments also contribute to RESPs through various savings grants.

You can open up and RESP through most financial institutions and some scholarship dealers as well.

Are there any restrictions?

As mentioned above, anyone is able to open and contribute to an RESP. However, there is a lifetime contribution limit of $50,000. While there is no annual contribution limit, CESG can only be received on the first $2,500 contributions per year.

These are some of the general restrictions that apply to all RESP accounts. Individual RESP providers may have different requirements, so be sure to do your research when choosing a provider.

When should you start saving?

As with any type of financial planning, the sooner you start saving the better! Contributing to an RESP early on will ultimately lead to your child having more money saved up for their education. You can contribute to an RESP for up to 31 years after it’s been opened, providing plenty of time to accumulate savings.

There’s no time like the present to start thinking about saving for your child’s education. Liu and Associates offers personal financial planning services to help you reach your goals in a timely and efficient manner. Make an appointment with one of our accountants today!

Working from Home: What can you claim on your tax return?

Nowadays, business and their employees are connected more than ever– allowing increased flexibility when, where and how people complete their work. Also there is a rising number of people whose main income is self-employment, which has blurred the lines between are personal spaces and the workspace. Income tax law has always accounted for those that make their living from their living room… or anywhere else in the home for that matter! If you work from home or are self-employed, do not overlook the credits you can claim on your income tax return. For more information, read on for four fantastic facts from Liu & Associates!

#1: Self-employed vs. “Working from home.”

If you work for a business and they allow you to complete your work remotely– you are not self-employed and do not qualify for the same tax benefits unless your employer signs the appropriate form. Self-employed individuals are eligible for a much wider range of claims and credits, so it is important to distinguish between the two circumstances.

#2: Automobile costs.

In modern business, being mobile can be extremely important– which means you may use your personal vehicle for work purposes. When this happens, you are entitled to claim the cost you incurred for these specific uses. This means calculating how much gas you used, as well as the ratio of how much you use the vehicle for work versus how much you use it personally. Once totaled for the year, you may claim a percentage of these costs as a credit against your income tax.

#3: Pro-rated expenses.

Like we mentioned in the tip above, the ratio of personal and work use can be applied to many expenses. This process is called “pro-rating” the cost over time to fairly represent how much money is spent on each item over the tax year. Some categories of these expenses include: insurance premiums, mortgage interest payments, property tax payments, utilities, furnishings or equipment– refer to the Government of Canada’s guidelines for a more comprehensive list of options.

#4: Carryforward.

One of the best results of claiming your “business use of home” costs is even if you do not need the credits, they can be rolled over to the next tax year. This carryforward provision is especially useful for self-employed people who are only just starting out. They may not make enough income to require tax relief, so they can defer the benefits to a more profitable year.

The four tips above are only a sketch of the diverse and complex reality of income tax law. If you have questions or concerns about your situation, contact or visit Liu & Associates today!

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

What age should you start saving for retirement?

Roughly half of all Canadians have some form of savings that they plan to use in retirement, not including any pension or social security that may (or may not) be available to them. While this may seem like a lot, it is not nearly enough! Many people procrastinate the process of putting away paychecks– even if you have a sizable savings account, your money could be earning you more than the modest interest offered by most banks. Keep reading for a few retirement savings tips from Liu & Associates!

EARNING POTENTIAL

Throughout all professions and ways to make a living, you will always make less at the start than later in your career. This fact of life leads people to put off savings until their annual income grows beyond their needs. While you can afford to make larger contributions when you make more money, investing small amounts earlier on can actually be more beneficial. Therefore it is always better to start saving for retirement at as young an age as possible!

STICK TO THE PLAN

Now that you know you should have been investing yesterday– whether you have saved anything or not, you should make a detailed plan for your priorities. Is there a specific item or activity that you are saving for? Do you hope to start a business? Dreaming of retiring in luxury? There are many different paths leading to each of these anything else you can imagine. The only way you will achieve this goal is by following your financial roadmap!

INTEREST & DIVERSITY

From a Tax Free Savings Account (TFSA) to a Retirement Savings Plan (RSP), there are no shortage of good options for saving your money at any age. Beyond these low-interest, non-volatile investments, there are also innumerable services that claim much higher returns– albeit, for a considerably higher risk (including losing your savings entirely). Look for modest interest rates or programs that support your personal values, but always beware putting all of your eggs in one basket. “Diversify your portfolio” by splitting up your investments between two or three different accounts that each offer different advantages.

The above tips are only a brief survey of the many ways you can make the most of your retirement. Whether you are just starting out or you are already an established professional, contact or visit Liu & Associates today for a full rundown of all retirement investments available to you.

GLUTEN-FREE TAXES: Claiming GF Costs as Medical Expenses

If you are unfortunate to suffer celiac disease or know someone who does, you know the serious consequences all too well. Eating is something we do everyday, so not only is it difficult to permanently adjust your diet: it is expensive too! Even the average consumer knows that gluten-free (GF) items are more expensive than the alternative. Despite popular diets, the Canada Revenue Agency (CRA) knows that eating gluten-free may be a medical requirement– in these cases, you can claim these costs as a medical expense. Does your household qualify for this credit? Read Liu & Associates’ blog below to find out more!

Incremental costs

The amount you pay for food is its cost, but when claiming gluten-free expenses you must calculate the incremental costs. This is the difference between the GF product and the standard alternative. For example, a whole wheat loaf of bread might cost $3 and a GF loaf of bread might costs $5.50– in this case the incremental cost is $2.50.

Shared food

If any household member eats or uses the claimed gluten-free products, but does not have to– you must account for this when calculating your income tax return. You can only claim a portion of the incremental cost according to what portion of the household is medically required to live gluten-free.

Income threshold

If you have looked into claiming medical expenses before, you may be aware of the term income threshold. This is the percentage of your income that the expense must exceed before you can claim it as a tax credit. In the past, the CRA has set the gluten-free medical expense income threshold at 3% or a fixed amount that is set year to year (whichever is less).

Documentation

While the CRA will often give you the benefit of the doubt, your claim may be selected for verification at random or if there is an error in the sums. To prepare for this, you should gather the appropriate documents: medical certification of your celiac disease, receipts for each product claimed and a summary of your incremental costs for each item.

The breakdown above is just a short briefing on the process of claiming gluten-free costs as medical expenses. If you or a member of your household is diagnosed with celiac disease, put your health first– but do not overlook the financial realities of the situation. Questions? Concerns? Visit or contact Liu & Associates today!

How Do I Change Accountants?

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!