Crucial conversations for entrepreneurs and investors:#6 Conversations with your accountant

24 Mar

Crucial conversations with your accountant

Spring and tax season are coming – are you prepared?

As a Canadian, there are a couple of things I don’t like about winter – especially the cold weather, and the short days. As I sit by a roaring fire and wonder if I should invest in an upgraded snow blower, my thoughts drift to spring, tea on the patio, and puttering in the garden. That sounds heavenly, until I remember that the warmer temperatures and longer days also mean tax season!

Research suggests that the short winter days and loss of sunlight contribute to depression. As for paying taxes, that can be (and often is) depressing too. When I had my own business, in addition to my personal income taxes, I paid corporate income taxes. Although I didn’t relish paying more taxes, I tried to look on the bright side (it is spring after all) and told myself that if I owed corporate income taxes it meant I had made a profit. Making a profit and being the one to decide what to do with it were two of the reasons I went into business.

Whether you run a big business, a small business, or something in between, spring means you will likely be seeing a lot more of your accountant. If you’ve been keeping good records all year, it won’t be too painful to get the information your accountant needs to complete your financial statements, and to calculate the taxes owed. When you are having those inevitable crucial conversations with your accountant, you may also consider including the following:

1. Do I have a tax strategy that takes into account my corporate and personal taxes?

2. Are there opportunities to minimize corporate taxes looking towards next year?

3. If I have a holding company, is there a balance in the capital dividend account (CDA) that may be tax free to me personally?

4. Are there opportunities for my family members to earn income by working for the business or becoming shareholders?

If you anticipate selling your incorporated business in the next few years, make sure you have the crucial conversation about the enhanced lifetime capital gains exemption regarding the disposition of shares of a qualified small business corporation (“QSBC shares”). Your company must be properly structured well ahead of any sale for you to take advantage of this exemption. This structuring will likely involve your corporate lawyer as well. You will find as I did that found the cost of legal and accounting fees to prepare the structure and documentation correctly for that future sale is well worth it.

I work with many clients that are independent business owners and that see the income from the sale of their business as one of the largest components of their pension plan. Some of them have been receiving dividends from the business rather than being paid salary and haven’t accumulated much in CPP or RRSPs. Others have hedged their bets and diversified their risk by contributing to CPP and RRSPs as well as TFSAs because they know that selling their business is not guaranteed to happen on their ideal schedule .

The crucial conversations with accountants and lawyers are essential for getting good tax and legal advice. In tandem with those consultations, let’s talk about how we can diversify your investments outside the business for those golden years to come.

It’s just good advice.