Why contractors get flagged for audits and how to avoid them
How much you should pay yourself as an owner
What to look for when you’re hiring an accountant – especially if you want them to advise you
Equipment and land – know when to buy vs lease, and know what the bank wants to see
When to know you are ready for a holding company (and no it’s not based on a financial figure)
Why contractors that meet with their accountant only once a year often lose out on big financial opportunities
Watch Episode 18 of the Contractor Evolution ShoW
Listen to Episode 18
Read a Summary of Episode 18
Want to make contracting leaders squirm? Just mention the IRS (or in Canada the CRA).
Don’t get us wrong, we all need to contribute to the societal pot of this great country, but too often contractors neglect bookkeeping (especially when they’re starting out). Either that, or make business decisions based on tax advice from self-styled ‘experts’– and the result is ‘sweat moments’: getting nailed with a huge tax bill at best, or audited at worst.
While plenty of sound strategies and planning exist to keep both you and the tax person happy, you’re probably too busy to understand them all; that’s why it’s crucial to retain the services of a skilled tax advisor, especially as your business grows.
Here are 6 KEY TAKEAWAYS from this episode with Ben:
Why Hire A Tax Advisor? Why Not Just An Accountant Or Bookkeeper?
Because accountants and bookkeepers gather information about your transactions to file returns that keep you compliant. While this is a vital service, Ben calls it “bare bones.” By the time the data is gathered, the transactions are already months old so it’s not really an opportunity for a lot of advisory services that could mitigate what you pay to the tax man.
Okay, I’ve Retained An Advisor. What Next?
Be sure to stay in touch, and stay informed, Ben says, that way, advisors can do advance planning. “When you’re doing things in hindsight or trying to catch up, a lot of [tax mitigation] strategies are gone, off the table.”Good advisors will always be accessible to provide proactive strategies. “I always say my cheapest hourly rate is a beer,” Ben says.
Can An Advisor Advise On My Business Operations?
While some advisors offer additional services that touch upon business guidance, Ben cautions against this option: “The business owner is going to know the business better than anyone, hands down. They need to drive their own bus.” (Ben dives deep into specifics when it comes to the contracting sector.)
Should I Establish A Holding Company?
It depends where you are with your business. If you’re spending all your profits, then no, but if you’re making a decent gross profit, moving that money into a holding company can mean substantial deferral opportunities and significantly impact your investment growth potential.
Is It Smart To Pay Myself As Little As Possible, For As Long As Possible?
Yes and no. It can make sense as a tax strategy in the early stages of a successful company, especially if you lead a frugal lifestyle. But the strategy falls apart when you approach the bank for a mortgage or to pursue other investments. Work with your accountant to establish a salary strategy based on your life achievement goals.
What’s Better: Leasing Or Owning?
With regards to equipment or land investment, too many contractors choose leasing based on tax considerations. “Tax should be the third or fourth most important consideration,” Ben says. “Number one is cash flow.” Also, tax implications on leasing versus financing are ultimately the same.
However, leasing looks good on a balance sheet because your debt ratio will be much lower than if you owe on investments. Again, consult with a professional to determine what’s best for your circumstances.
At the end of the day, you’re solely responsible for your financial decisions; but retaining professionals such as Ben ensures that these decisions are sound.
So enjoy this episode of Contractor Evolution – then go buy a beer for the best advisor you can find.