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Top 5 Ways to Prepare for Tax Season

Calgary 2020 Tax Planning

As the 2018 tax season wraps up, tax is likely the last thing you want to be thinking of. That said, now is probably the best time to get organized for the coming year. By setting up proper systems and processes early, a lot of headache and stress can be avoided close to the deadline.

  1. Assess your bookkeeping system: If you are going to change your bookkeeping system, whether it be from excel-based to cloud-based, or from a shoe box of receipts to excel, it is best to do it as early as possible in your tax year.
    When you hand things to your accountant, if you have different methods of bookkeeping used in a single tax year, the accountant will have to combine together multiple systems and perform reconciliations to ensure nothing is double counted or missed. That is why if you are changing your bookkeeping process it is best to set things up as if you are starting from the beginning of the year (January 1 assuming you are a sole-proprietor or have a December corporate year end).
    We would then recommend going back in time and re-doing any bookkeeping from the beginning of the tax year so everything is recorded in one system. You can read about cloud based bookkeeping and if it makes sense for your business here: https://kapasi.ca/is-cloud-based-accounting-right-for-you/

  2. Organize your paperwork: Today, a file folder organization system for receipts/invoices is not the only way to organize your paperwork. There are numerous software solutions, such as HubDoc, DropBox, and Evernote, that let you digitally organize and store your receipts, invoices, and other paper work.
    You can then shred the physical copies once you have uploaded and saved the electronic data with appropriate back-ups. Make sure you set up folders by month and set up time-stamping so you can easily sort and find receipts. Similar to your bookkeeping system, setting up and maintaining this type of tracking is best done early in the year.

  3. Discuss your tax planning strategy: Early in the tax year is a good time to discuss tax planning and strategy with your accountant for the upcoming year. This is because changes in the approach can impact what is required today.
    For example, changing from dividend to salary withdrawals from a corporation will require source deduction payments monthly to CRA. Also, any corporate re-organizations or succession planning started early in the year gives lots of time for the legal paperwork and tax filings to be made on time, avoiding the December rush.

  4. Discuss any changes to tax rules: Discuss with your accountant if there have been any changes to tax rules that would impact you in the upcoming year. Recently, changes to income sprinkling and passive investments came into effect, which impacted how and to who dividend distributions are able to be made out of the company. See our post here for details: https://kapasi.ca/income-sprinkling-rule-changes/

  5. Watch for letters from the CRA: The CRA has been increasing the number of reviews and audits they perform. It is important to give all these letters to your accountants as soon as possible as these letters have a deadline to respond to and can impact the taxes you owe if they are not addressed within 30 days. In addition, your accountant should review any notice of assessments and re-assessments sent by CRA to ensure they agree with filings made.

We would be happy to discuss ways to proactively tackle the above tasks. Please feel free to reach out to us here: https://kapasi.ca/contact-us/

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Is Cloud-Based Bookkeeping Software Right For You?

Cloud-based accounting in Calgary

Cloud-based accounting solutions have seen a rapid rise in recent years due to advances in technology and a more tech-savvy generation running today’s businesses. This has generated a wave of different providers and different configurations. Whether this is something that should be implemented in your organization takes some consideration and planning. This article will cover our thoughts and approaches.

What is It?

Cloud-based accounting software is a service where all bookkeeping and day-to-day accounting functions can be accessed and managed through an online account. Common service providers include Quickbooks Online, Xero, and Wave Accounting.

How does it work?

At a high level, the online software can connect to bank and credit card business accounts, pull-in transactions (or these transactions can be uploaded), and allow you to categorize them based on a chart of accounts you can set up. Accounts can be easily added and removed, history is stored online on robust servers, and manual journal entries can be inputted. Other features, such as bank reconciliations, GST application, and bulk transaction coding are also often available, speeding up the bookkeeping process.

What are the benefits?

Cloud-based solutions have numerous benefits for your organization:

-Automatic feed from the bank along with bulk coding, GST, and bank reconciliation features, allowing bookkeeping to be done efficiently and less prone to errors if the user understands the tools they are using.

-Cloud-based storage means that data has a very low chance of being lost, can be accessed anywhere by logging in, and is subject to high security measures making them safe and secure to use.

-External accountants can be granted access to the system easily, allowing accountants to pull necessary reports, review transactions for issues, and correct errors on the fly without having to obtain the local backup file or go to the client location.

-Historic data will be stored and accessible forever, with ease to look up information or obtain historic details that accountants or tax authorities may require.

-Multiple users can easily access the system, preventing any requirement for an in-house server if multiple users require access.

What are the Downfalls?

Despite the numerous benefits, cloud-based solutions may not be for everyone and may add more work and cost than necessary:

-There is additional learning and time required to implement the software. Converting your current data and importing it to the cloud can be costly, depending on the nature and extent of the data.

-The system is prone is user error, just like any bookkeeping software. Although there are numerous learning resources put out by the service providers, but if they are not carefully followed costly mistakes can be made.

-Cloud-based systems are vulnerable to hacks, just like any online platform.  Although the risk is fairly low, your account could be compromised if your password is leaked or e-mail account is hacked.

Should you consider cloud-based accounting?

At Kapasi, we recommend organizations that make numerous transactions (25+ a month), and where the user has a strong understanding of computers and online software, consider implementing a cloud-based solution.

Businesses and organizations making fewer transactions and that have simple accounting requirements, such as incorporated contractors and professionals, may not find the benefits worth the time to implement and upkeep. For these simple organizations, we find that a client who maintains updated and accurate spreadsheets will often save time (and therefore cost) compared to someone using a cloud-based solution because of reconciliation and other clean-up errors in the software.

That said, those clients that spend the time to learn the software and make sure reconciliations and a proper chart of accounts are set up, will often save time, cost, and make their lives easier.

What platform is recommended?

At our Calgary-based accounting firm, we recommend either Quickbooks Online, Xero, or Wave Accounting to our clients. Through our testing of multiple platforms, these would be our top recommendations. Each platform does have its pros and cons, but there is no one option that outshines the other two. Therefore, what you choose really comes down to you and your needs. Talk to us about our recommendations and conversion process if you are thinking of implementing a cloud-based solution.