• Maximising Your Tax Deductions

    6 February at 09:06 from atlas

    Like it or not, income tax is high in New Zealand. As those of us in business know, it can be a struggle to pay in lump sums especially when the prices of what we buy keep going up, and our customers and clients lack the cash to pay for our goods and services. Therefore, it is very important to make sure that we've done all that we can to maximise our tax deductions.

    Here are some practical things you can do to place yourself in the best possible position to maximise your tax deductions:

    Keep good books and records

    Yes, maybe it's not very exciting, but nevertheless, it's the key to capturing all your business costs and expenses as tax deductions. With online accounting software, it's a lot easier than it was, so your excuses are wearing thin!

    Keep all receipts and invoices

    With the move towards a paperless environment, this would require a bit more discipline than it used to. If you don't want to waste toner and paper, set up some electronic folders in which to save everything, and adopt the US date format so that it's all organized according to each month and year.

    Get a great, proactive accountant and pay them the going rate

    Don't just stick with the same old accountant out of blind loyalty; move to one who is interested and will help you save tax. To get the best from your accountant, it is very important to tell them what's going on, and promptly supply them with all the information they need. It's also vital to get one you can ask questions of without fear of receiving a huge bill every time.

    Do some research, and get a book or two on tax

    Don't leave it all to your accountant because getting involved yourself will make a big difference. Google tax deductions (just New Zealand, of course), and have a browse. Books on tax in New Zealand for the layman are unfortunately few and far between and get out of date rapidly. The best one on tax deductions, Slash Your Taxes Now by Peter Sibbald, is now way out of date. Use it only for ideas, and check each book carefully for up-to-date edition.

    Don't ask the IRD

     It's the job of the IRD to collect tax, right? So why on earth would you expect them to go out of their way to tell you how to maximise your tax deductions? In addition, they tend to be trained to just deal in individual areas of tax rather than tax as a whole. Nevertheless, many taxpayers think they are saving money by asking the IRD rather than an accountant!

    Use a business bank account, and channel all business expenses and costs through the account.

    With different channels to spend money (or channels smart entrepreneurs have invented to get you to spend your money!) such as credit cards, store cards, suites of multiple bank accounts, Bartercard and Paypal, it's easy to lose track of all your business expenses.

    The way around this  is to use a specific business credit card or business bank account, and channel all business expenses and costs through that account. Set up an AP or a DD so that the credit card bill is paid from the business bank account.

    Consider alternatives

    Tax is very complex, and there are often alternative ways of claiming a tax deduction. I find that the more common the tax deduction, the more complex or greater number of alternatives there are.

    Take motoring costs for example. Do you bite the bullet and just pay the FBT,  charge the FBT equivalent to your advance account, keep the vehicle in your own name and claim the generous (!) mileage allowance, do likewise but claim AA rates, or use a vehicle just for business? In circumstances such as these, it's important to consider all the alternatives and see what's best for you.

    Grey areas

    Despite all the tax legislation and IRD pronouncements on this or that, there are still many grey areas in tax. For example, consider the use of home for business. Just how do you apportion power costs without a separate meter? Or allocate the appropriate property costs of working from your yard and maintaining a security gate like my mechanic client who works from home?

    And how do we work out the amount to claim for areas that are used for both business and domestic purposes? It's necessary to adopt an approach based on the facts and your specific circumstances, which you can support with everything documented in full to protect you down the track.

    As with many areas in life, the key to success in maximising your tax deductions is common sense. Invest time, do some research, get organised, and seek out good advice. It'll pay off handsomely!

    The information provided here is of a general nature and only applies in New Zealand. You should not act upon this information without obtaining appropriate professional advice and only after a thorough examination of your particular circumstances by an experienced tax adviser.



    See full article: http://goo.gl/x2wtWK#ixzz3QuXLIyyG

 

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