When it comes to taxes, Susan Shirriff understands the value of her accountant. As the owner of Avenue Skin Care Inc., a medical skin-care boutique in Toronto’s Yorkville neighbourhood that focuses on corrective treatments for problems such as sun damage, Ms. Shirriff’s 10-year-old business has occasionally been audited by the Canada Revenue Agency. Each time, there’s been no problem.
“I wasn’t even nervous because I knew everything was in order,” Ms. Shirriff, 57, says of the audits, which turned out to be routine inquiries. “It’s just peace of mind. If I did it myself I would be worried that I’d missed something.”
Ms. Shirriff sought professional help from the beginning – even when she was a sole entrepreneur making $100,000 – but now that the business has grown to six employees with $1-million in annual revenue, she’d never consider doing her own taxes.
“The number doesn’t matter,” she says. “What matters is getting it done properly by an expert. I don’t want to cheat, but I don’t want to cheat myself, either. It’s just part of my business plan.”
Chartered accountant Mitch Silverstein, a partner at Richter LLP, an accounting and financial advisory firm in Toronto and Montreal, agrees with seeking professional help early – even if that sounds self-serving.
“The magic word is ‘growing,’” Mr. Silverstein says. “If people are just starting, you could go through your first year to make sure you have a business. But when you’re in a growth situation, things can become complex very quickly. Or worse, things may be becoming very complex and the business owner doesn’t realize it.
“People think tax planning is for large companies when it’s probably more important for smaller and mid-sized companies that are growing. They need every dollar for reinvestment and for financing that growth because you can’t always get every dollar you need from your institutional bank.”
Mark Feigenbaum, a chartered accountant and U.S. tax attorney, says that while a lot of small businesses can do their taxes themselves – using free or inexpensive software that’s available – there are many situations when they should hire an expert.
“If there’s a unique situation in your life – such as if you’re self-employed or your business is unusual, if you work or have sales in different provinces or in the U.S., or if there’s a change in your family status such as a death – those things add complexity to your taxes,” says Mr. Feigenbaum. “When you do it yourself, you may not be using all the deductions you’re entitled to take.”
His firm, Mark A. Feigenbaum in Thornhill, Ont., focuses on people working in different countries or who are in the sports and entertainment industries, which adds extreme complexity to their taxes.
“If you have an industry with specific rules to your type of work, then you want to go to someone who knows those tax rules and how they relate to you,” Mr. Feigenbaum says. “Once you start getting into the treaty between Canada and the United States, that’s beyond what most people can do themselves. You can get all the forms online so people think, why pay someone to fill them out. But it’s knowing what to put in the boxes and the correct way. There are some forms that, even if there’s no tax owing, have per-diem penalties for not filing them.”
Mr. Silverstein adds another downside to businesses doing their own tax returns.
“The tax planning and strategy that’s done at the corporate level translates into the personal tax return filing,” Mr. Silverstein says. “The savings by doing it yourself or buying software can very often be far outstripped by not having a holistic approach to the preparation of both the corporate and the personal stuff. Decisions made at the corporate level will affect the personal. If you don’t have the corporate adviser involved in the preparation of the personal tax return, then things can be missed, overlooked or done incorrectly.”
So, is there a tipping point where a business should seek help?
Mr. Feigenbaum says it’s when you feel frustrated that you’re not understanding the forms or finishing the returns on time. Or when you start receiving notices from the government, which means you’re on their radar.
“With notices, you may only have a certain number of days to respond and after that time, you may be out of luck,” Mr. Feigenbaum says. “Sometimes people are terrified to talk to the government. Generally they just need a response but tend to get more agitated when they’re ignored. That’s when you may want to talk to a professional to help you.”
Mr. Silverstein says expert help is needed in the event of an audit. “The business owner will get asked a series of questions and be required to provide documentation as support. The business owner doesn’t know all the traps and pitfalls that come with those innocuous questions. You have to understand the implications and where that could potentially lead you and your company in terms of trouble.”
He says protracted audits are time consuming. “Even if there’s nothing wrong, as a business owner you’re taking your foot off the gas pedal of your business to deal with it. Of course, you have to pay for the service, but wouldn’t it be nice to have somebody deal with it for you.”
That’s a benefit Ms. Shirriff clearly appreciates.
“I have a very personal, service-oriented business, so I don’t want to take time away from that to do taxes,” she says.
Follow us on Twitter: