As a CPA or Chartered Professional Accountant I’m often asked by new business owners: can’t I just do my corporate taxes myself?
In this article, I’m going to help you decide if hiring a Chartered Professional Accountant is worth it.
Article Written for TaxWrx by Chartered Professional Accountant Jillian Battaglio.
Filing your personal income tax return yourself has become a point of pride for many savvy Canadians.
When mention I’m a CPA at cocktail parties I often hear: “I file my taxes myself. The software I use is great.”
And fair enough.
I think this is fine if you are an employee, don’t have commission expenses, don’t drive for work, haven’t moved, don’t own a rental property, don’t own a small business, don’t have investments outside of an RRSP or TFSA, and don’t have tuition to claim…
Get the point?
The adage 'You Don’t Know What You Don’t Know' is so true with income taxes and corporate income taxes is a whole other ballgame.
The argument “you didn’t know” isn’t going to fly with the CRA.
They’ll happily hear your explanation and then apply the taxes along with interest, penalties, and potential negligence charges.
The Big Mistake
The big mistake I see clients make when filing a corporate income tax return themselves is missing the balance sheet.
A personal income tax return for a sole proprietorship is mainly concerned with the income statement which is what most business owners are familiar with.
Revenue is along the top with expenses down below. The net profit is what is taxed.
Simple enough.
But with corporate income taxes – the balance sheet plays a significant role in the calculation of both your corporate and personal income taxes.
The balance sheet tracks things like the ins and outs of your bank account, who owes you money, the asset owned by the business, and your loan balances.
These things are so important for corporate taxes that I often spend up to 80% of the file time just confirming these amounts.
Because of their tax importance, these are common areas of audit and not understanding how the balance sheet flows and interacts with the income statement, lands many do-it-yourselfers in hot water with CRA.
"Over time, CPA services pay for themselves." – Jillian Battaglio, CPA, CA
You Really Want a CPA
Let’s go through a few examples.
Find a CPA Not Just an 'Accountant'
A client we’ll call Josh had unknowingly chosen a non-designated accountant to help him with his corporate taxes.
This meant the accountant filing Josh’s returns wasn’t certified as a Chartered Professional Accountant.
Josh didn’t understand the significance, only understanding the individual was ‘An Accountant’.
After several years of unreturned phone calls, late filings, and lots of yelling, Josh sought out a CPA.
This is when Josh discovered his non-designated accountant had issued dividends to Josh’s family members who weren’t shareholders of his corporation.
This meant none of these dividends were valid. Not only was this disturbing but it caused huge headaches, unexpected taxes, a lot of stress, and extra fees to fix everything up.
Please Don't Do Your Taxes Yourself
A second client we’ll call Mary decided to prepare her own corporate tax return for a few years when getting her new business off the ground.
As her business grew, Mary turned to a CPA for assistance.
This is when it was brought to Mary’s attention that she had recorded multiple vehicles on the balance sheet; however, the ownership had never been formally transferred to the corporation.
Coincidentally Mary was also going through an audit and CRA picked up on the error.
This cost Mary thousands of dollars in back taxes and penalties because the vehicle claims were denied.
As you can imagine, it was a nasty surprise.
"Not understanding how the balance sheet flows and interacts with the income statement lands many do-it-yourselfers in hot water with CRA" – Jillian Battaglio, CPA, CA
These client experiences sucked. They caused extra stress, frustration, sleepless nights, more taxes and extra accounting fees.
Why CPAs Are Worth It
To become a Chartered Professional Accountant, you need 6 – 7 years of schooling, many, many approved training hours, and you need to pass a 3-day exam.
I can confirm, it’s quite a rigorous process.
The education requirements are rigorous to ensure that only individuals of character and sufficient knowledge become certified.
What these requirements do is protect the public.
It’s why CPAs are expensive and why non-designated accountants and just doing it yourself can leave you open to nasty surprises.
CPAs help protect you from unexpected tax bills, unnecessary audits, and horrendous mistakes on a year-by-year basis.
This is why over time, CPA services pay for themselves.
I hope this article has helped you see the value in Chartered Professional Accountants.
If this topic has interested you, be sure to check out our other blog articles and consider subscribing to one of our membership plans so you can be a well-informed business owner.
Article Written for TaxWrx by Chartered Professional Accountant Jillian Battaglio.