I know that’s probably not the answer you were hoping for, but like most things when it comes to taxes, the answer to the question, “Do I need an accountant?” isn’t a simple one.
Because most people hire an accountant to do their taxes, let’s look at taxes first. Taxes can be grouped into two broad categories: personal and business.
When it comes to your personal taxes, to determine if you need an accountant, you’ll want to think about what you have going on in your personal tax situation. If you’re single, an employee, and don’t have any dependents or special tax considerations, you can probably prepare and file your own tax return.
Tax programs like TurboTax do a great job of walking you through the preparation of your tax return when you have a straight forward situation. They typically ask you interview style questions to make sure you claim all the deductions and credits you’re eligible for. Where these programs fall short, however, is when you have special tax considerations.
Special Tax Considerations
So, what do I mean by ‘special tax considerations’ and why are they important?
These are things that TurboTax or similar programs might not know to ask. For example, if you are attending a post-secondary institution, you can claim your tuition fees. If you are separated or divorced and have dependant children living with you, you can claim what’s called an “equivalent to spouse amount” which can often result in a substantial tax savings.
The most commonly missed personal tax credits and deductions include:
Amounts for eligible dependents, and
If you’ve ever seen the Canadian Income Tax Act, you know it is a very thick book. Accountants are paid to know all the possible tax credits and deductions that might apply to your situation and if they are practicing tax, they are also required to take tax updates every year.
Most public accounting firms use comprehensive tax checklists to make sure they ask you about every possible tax scenario, so if you think you might have a special tax consideration, it will be worth it for you to hire an accountant to do your taxes.
Unless you have a business degree and understand the Tax Act and how to claim deductions and credits using your preferred tax software, I don’t recommend you prepare your own business tax return. There are just way too many opportunities for things to get missed or done incorrectly when it comes to business taxes.
When it comes to business taxes, accountants are trying to save you the most tax possible by making sure you claim all the necessary expenses you’re entitled to. In Canada, there are also a number of tax incentives available to businesses that meet certain criteria, so it pays to hire a tax expert to complete and file your business tax return.
Tax & Financial Planning
A common extension of tax preparation services is tax planning. This is where your accountant can estimate what your taxes will be for a specific period of the year and recommend you pay the government an installment to avoid a large tax bill when your taxes are prepared.
You may also want to get some advice as to whether you should contribute to a Registered Retirement Savings Plan (RRSP). Accountants can tell you approximately how much tax you will save by purchasing an RRSP. Many taxpayers would rather invest in their retirement than pay the government.
Your accountant can also work with your financial planner throughout the year to make sure your investments will trigger the least amount of tax possible.
We all know accountants can help you with your taxes, but what else can they do?
When you own and operate a business, a professional accountant is really more like a business partner. As part of their business training, accountants are required to take courses in other business subjects besides accounting. They can help you in many areas of your business that can lead to growing your business, especially if they are familiar with businesses in your industry.
Other areas accountants can help include:
Pricing, and more.
Not all accountants will offer all of these services, so if something on this list interests you, make sure you ask before you hire someone. It’s also a good idea to find out if they are familiar with your industry and the technology you plan to use.
In Canada, it’s a myth that you have less chance of being audited if an accountant prepares your tax return. Last time I checked, the Canada Revenue Agency was still selecting audits randomly.
You can lessen the stress of an audit by using a professional accountant. When you know things have been done properly and all the necessary paperwork is in order, an audit becomes a lot easier for you.
So, what do you think? Do you need an accountant?
If you’re still not sure, check out my Skillshare class Do You Need an Accountant? where I cover the documents you will need to prepare your tax return, how to organize your documents (both digital and paper), as well as more information about when and how to hire an accountant. You can watch my class and get two months of Skillshare for free with my affiliate link.