What does springtime mean to you? April showers? Easter? In all honesty, for most working professionals, it means tax season. Taxes are a necessary evil that is the sobering reality for anyone earning a paycheck - remember the shock of looking at your first paycheck? But with each passing filing, it seems like the younger generation of yuppies and yuccies are turning their back on the friendly neighborhood accountant. Instead this generation of do it yourself - with the help of Google - people are turning to software like Turbotax or an employee at H&R Block to prepare and file at the end of the fiscal year.
With FinTech only gaining momentum and popularity, is it possible that this is the beginning of the end for certified public accountants? You’d think so, right? The internet has opened up doors to do things too complex to take on before. But, in this economic climate CPA’s are more important to businesses and young professionals than ever.
The rise of startups and the contract employee
The economy is primed for startups. We’re at an age when people are constantly able to create and innovate to drive the world forward with the click of an app. But with all new business ventures comes great risks. A whopping 90% of startups fail according to a recent Forbes article. There is incredible and inherent risk when starting a business and every dollar spent needs to be accounted for. So it’s no wonder that with the boom of the startup sector that there’s a rise in contracted employees. Contracting employees is cheaper. Not only that, but by contracting work, startups everywhere gain the flexibility to adapt and shift to the market needs. Independent contractors are the logical choice for emerging businesses. However for the contracter themselves, the line between employee and freelance is a blurry one. In all technicality a contractor is defined as:
- Having no employment status. They are not entitled to participate in traditional employee benefits or other benefits prescribed under employment standards legislation.
- Independent contractors often assume the risk of having the project or assignment cancelled midstream. They usually retain control over when, how and where work is completed.
- Independent contractors are allowed to contract with other companies at the same time.
- Independent contractors generally use their own equipment unless otherwise stipulated in the contract.
- Independent contractors submit invoices to the company to receive payment for the work. After reaching the first $30,000 threshold, they must register with the Canada Revenue Agency (CRA) and obtain a GST/HST number. Independent contractors must then begin charging GST/HST and provide the company with this number when invoicing.*
As you can see from the above list of contract employment criteria, being an independent contractor has more strings attached than probably most people realize. And for a young professional just out of school, being an independent contractor is not only lucrative, but sometimes necessary.
Let me paint a picture for you. The classic joke for job seekers - especially for the fresh crop of graduates - is the typical descriptions posted on job fair sites asks for ‘entry level’ positions with minimum 5 years experience. As much as older generations would like to point blame at millennials for lack of direction and conviction when getting a job, there’s no denying that the opportunity isn’t the same as in the good old days. Experience is valued higher than education, but how are you expected to land the first gig, when you’re constantly stuck in the never ending paradox?
Enter self-employment. The instability of startups need the eagerness of the underemployed looking for their break, it’s a match made in heaven. This symbiotic relationship is a great way for the contracted to build a solid portfolio and for the startup to cut the traditional costs associated with full time employment - re: benefits. But come tax season, the challenge of self-employment rears its ugly head.
Yes, you still need an accountant
Inexperience, mixed with the looming tax deadline creates panic for so many young people out there. So how can an accountant alleviate that stress? They understand tax laws and can help you save your hard earned cash. The same thing can be said for entrepreneurs navigating the world of small businesses. CPA’s can help keep your financials on track, while advising you on taxes. “This may seem obvious, but keep in mind that rules and regulations change frequently, and it’s tough if not impossible for any business owner to keep up with it all. Twenty-nine per cent of Canadian small business owners admitted that accounting and bookkeeping is one of their biggest challenges. An accounting professional can take away your uncertainty and ensure your business stays compliant.” This is just one of the 9 reasons why entrepreneurs should hire an accountant according to the Globe and Mail.
And even though it’s fairly cut and dry for entrepreneurs to use accountants for their business needs, the same thing should be considered by contract employees. The reality is that in the government's eyes, contractors are seen as small businesses. Accounting professionals can help use tax laws to your advantage. From claiming business expenses, to paying income tax in installments, the advice and help from an accountant, who’s entire career surrounds taxes, is very valuable. Tax accountants specializing in self-employed contractors will also help navigate additional deductibles like, office space, equipment, and utilities. If you’re fully working at a home office, accountants can help you evaluate deducting things like:
- Your mortgage interest or rent
- Property taxes
- Capital cost allowance
- Home insurance
So, are we at a time when it’s easy to file your taxes, all on your lonesome? Yes. But nevertheless, more and more people are turning to the side hustle to earn a little extra at the end of the month. Unless the entrepreneurial spirit dies, the accountant will live.