Changing Accountants

Hi ladies!

This year, we decided to change accountants due to travel distance. This is my second year running daycare, and the first year was for only a couple of months. However, I am noticing some BIG differences with what I was told vs what was told today between accountants. I was just wondering if you more experienced ladies could chime in so I have a solid comparison. For the record, I am in Ontario.

1) The first year, we did not need to pay into CPP or EI. This year, we were told that paying into CPP is not an option. In fact, I must pay twice, one for being the employee and once for once for being the employer.

2) The first year, I was told that told that expenses would carry over, since I paid more to open up then I made that year. This year, I was told that there is no carry over claimable and what is lost is lost.

3) How much do you pay your accountant approx? Not for book keeping, just straight imputing numbers.

4) Approx. on an gross income of $20,000 - $25,000 how much should we be prepared to pay out?

Thank you ladies in advance! :D

The part about CPP is true! That will often be the highest portion of the amount you pay every year.

You can not 'save' or carry over expenses for next year per se. There is a formula you can use to claim Capital Expenditures. These are big ticket items that you write off a certain percentage off each year as they depreciate in value. Otherwise, things like toys, food, craft supplies etc. are claimed for the year you buy them.

There is a similar formula for household expenses like hydro etc.

DH is an accountant so can't I can't help with how much you can expect to pay. I think it's probably worth while getting a decent accountant to at least do it the first year. Then if you understand what to do it's not that hard to do your own after that.

I had low income my first few years as well due to start up costs . One year I was only open about 2 months, and I was allowed to carry over expenses the following year that were under the "% use of home expenses" such as all utilities/mortgage interest/internet etc. The carry over was allowed because I was operating at a loss on the previous year, and those expenses didn't get used on the previous year's tax filing. You can not carry over things that are 100% business writeoffs like toys/art supplies/food etc.
The capital cost allowances can be carried over at a specific percent writoff each year, if it was an item that cost over $500(ie. play structure/car/computer/expensive stroller etc) Each CCA has a different % of write off per year, depending on what kind of expense it was(ie computer relates to office equipment , climber is play equipment etc) Your accountant should be able to tell you about all of this.
I didn't have to pay CPP until about year 3, but it depends on income versus expenses, so will vary for each provider.
I make sure all of my expenses for business and personal have been subtotaled before I hand it over to the accountant, because I don't want any added expenses. I pay about $450 for tax prep, which includes one business return for me, and 2 personal returns for my husband and myself, and efiling for it all. I am in the Greater Toronto Area in Ontario, so I don't know if these expenses vary from bigger cities to smaller towns.

You pay CPP every year but depending on what your taxable income is there is minimum at which no CPP is payable. Yes you pay both parts but there is also relief where part of it is taken off at another part on the form. You do not pay EI ever unless you elect to do this and apply for it. Most do not as the only time you can use it is for mat leaves or similar not times of no income.

You can incur a loss on your business based on expenditures especially in the first year and that brings your income down to a negative number so you then operate with a taxable income of zero throughout the form. Your business use of home expenses can not be used to bring you down past zero so you do carry those over to the next year. There is a way to carry them over. Alternately anything not needed to bring your income down to zero in the first year can be saved and applied to another year - basically what is happening is that anything you buy before you open are your personal purchases. At the time you open your daycare you in effect sell those items to your daycare at cost so that they become a daycare deduction. If you didn't need all of the items for the first year " sell" them to yourself for the second year and claim anything that was not needed for the first year.

I do my book keeping and tax prep myself but have had a lot of advice along the way.

1. That is true about CPP. We are both the employer and employee so we pay both portions. You will always have to pay this but it's a good thing. EI is something you need to sign up for (if you're interested) and you have to pay into it for a year before being able to utilize it. I signed up for it in case I ever need/want mat leave or need disability/sick leave. I admit, I didn't really look into it too too much but for the amount I pay per year, it is worth it to me if I were to ever need it. My husband's aunt works for EI and strongly recommended I consider doing it.

2. I have never had to carry over anything so I have no advice

3. I lucked out and found a retired accountant who does it on the side now as extra money. She charges me $60 but is worth so much more to me! She is fantastic IMO. However, the first year I paid $250 when I got it done at HR Block and I believe $250-$300 is the norm around here (MB)

4. Really hard to say as each of our situations is so different. I have paid as much as $2400 to as low as $0 (besides CPP and EI). The goal is to get to $0 as close as possible and your accountant should help you to find ways to do this and give advice to the following year to increase your deductions

CPP is always paid provided your income was higher than the personal amount.
You can elected to pay into EI but you are only able to use it for maternity leave and sick benefits. Not in the event of no kids or when closing your daycare. I've worked for a reputable tax preparation company for 16 years. The starting cost for a personal tax return with business expenses is about $300

Quote:

---

Originally Posted by ttremble88

1) The first year, we did not need to pay into CPP or EI. This year, we were told that paying into CPP is not an option. In fact, I must pay twice, one for being the employee and once for once for being the employer.

---

This is correct. But you not really double paying. As employee, you will contribute with your employer based on your earning for that employment time only. Then as a self employed person, you will pay the self-employed rate for the rest of the tax year.
You are still just paying one - year round, just like if you stayed in one job you pay year round.

Quote:

---

2) The first year, I was told that told that expenses would carry over, since I paid more to open up then I made that year. This year, I was told that there is no carry over claimable and what is lost is lost.

---

If you operated at a loss the first part year, then you wouldn't have had to pay tax or CPP because you didn't earn anything for those few short months. But your expenses from last year were your expenses from last year. Just like, if you earn a whack of money in a given financial year, you can't just declare some income and pay tax on only some income and carry the rest over to another time, you can't carry expenses forward either.

Quote:

---

3) How much do you pay your accountant approx? Not for book keeping, just straight imputing numbers.

---

I don't. I wouldn't pay a private surgeon to give me a bed bath - over qualified to the task and over expensive. Much much cheaper to pay for an hour of accountants time, to learn what YOU need to do to input information. That's a one off cost. I wouldn't pay accountant fees for data entry.

Quote:

---

4) Approx. on an gross income of $20,000 - $25,000 how much should we be prepared to pay out?

---

Totally impossible to answer. Basically, you can deduct your allowable expenses from your gross business income to end up with the profit you made. But then, your own personal tax allowances will vary depending on personal situation, married or not, kids or not, student loans or not, single parent or not - it's too variable.
If you save the income from one day care child, whether you have 4 or 6, that should be enough to cover tax, CPP and EI (if you are opting in to paying EI).

Yes the CPP part is correct. You need to sign up for EI if you want to, it isn't automatic.

My first year I worked for 4 month and only had 1 boy on a part-time basis. I had a huge amount to rollover to the 2nd year.

I pay $400 plus tax to my accountant. That is for my husbands taxes and mine. I do not have a separate tax filing for my business, it is all under my personal tax. My accountant is amazing and I wouldn't change it for anything. There is more to it than just data entry! Each to their own though.

I made roughly $38,000 last year but got it down to under $9500 after all deductions! Now wonder I always seem to be broke!! Lol

This link might give you some information to at least discuss with your accountant. Basically anything not used in the first year to bring your income to zero is carried forward and used in other years when you do have income. Just starting out is one of the primary reasons for a loss in the first 2-3 years of business as you have a lot of one time expenses to deduct to get started.

http://www.cra-arc.gc.ca/tx/ndvdls/t.../menu-eng.html