20 top tips to maximise tax deductions
We recently ran a seminar where we looked as some top tips to save tax. It was so popular we wanted to share it with a wider audience. With the end of the financial year fast approaching, it seems like a really opportune time.
- Home Office. If you work from home at any stage of the week, then you can claim a percentage of your home expenses against the business. This could include your rent or mortgage interest, rates, water rates, insurance, repairs and maintenance and electricity bills amongst others.
- Home phone. You can claim 50% of your home landline and broadband and all your business related calls.
- Smart phone. Your mobile is likely to be 100% deductible if private calls are incidental.
- Put your partner to work. If you run a company there is no reason why your partner cannot work in the business. This makes real sense particularly if they are not earning an income as they will be taxed on a lower marginal tax rate. You need to benchmark the work to make sure you aren’t paying too much for the role they will be doing. Make sure they sign an employment agreement and pay PAYE. Be aware though that if you are a sole trader you do need the IRD’s permission to do this. That isn’t necessary in a limited liability company.
- Claim for your car. There are several ways to claim for running a car for business purposes. You can record every trip using a log book, consider buying a vehicle in the company’s name or claim 25% of running expenses if you are a self-employed person. Talk to us about the method that’s best for you.
- Assets. Sell or write off any assets that are no longer useful in the business. Be sure to let your accountant know of any new assets you’ve purchased during the year. Anything over $500 is likely to be depreciable and a deduction can be claimed.
- Bad Debts. If you give customers credit, then you may well have some debts that you know you can’t collect at the end of each year. These can be deducted in full as bad debts.
- Travel. If you travel for business purposes, it’s very likely that you can claim some or all of the travel, whether domestic or international. Flights, accommodation and food can all be deducted 100%.
- Defer Income. If cash flow allows it, consider deferring invoicing to some clients. Income that falls into the next income year is income you won’t have to pay tax on for another year.
- Entertainment. Business related entertainment is very often 50% deductible. The IRD have produced a useful guide which you can see by clicking here.
- Pay your tax on time. Not meeting your payments when they fall due will mean interest and penalties from the IRD. Pay the tax on time. If you can’t, consider tax pooling to minimise the interest and avoid any penalties. We have a good article on tax pooling in a previous blog if you want to know more.
- Amend previous years’ tax returns. It’s possible to go back up to seven years to amend income tax returns. If you’ve missed a big deduction, this can be well worth while. Talk to your accountant about the pros and cons.
- Consider a Look Through Company. If your business is trading at a loss, it’s possible to offset those losses against your personal tax which may mean a personal tax refund. This is a complex area so get advice.
- Inventory. Be sure to carry out a physical stock take around 31 March each year. Consider valuing your inventory at realisable value rather than cost. Realisable value is the amount you can reasonably make in an arm’s length transaction rather than what you necessarily paid for the stock. This may make quite an impact on the closing stock figure. Bear in mind too that if you carry less than $10k in stock, no stock take is required.
- Buy high value consumables. Stock up on photocopier toners and other high value items. These are all fully deductible and will reduce your profit and therefore your tax.
- Loans. Interest on loans made out to the company are fully deductible. Interest in your own name probably isn’t. Make sure you structure the loan to maximise their deductibility. Check with us before taking any action.
- Donations. Consider a donation from the business to charity. The amount of the donation is limited to break even. You can’t make a large donation causing the business to make a loss but you may prefer a charitable donation to paying more tax.
- Out of pocket expenses. Keep your receipts for purchases made out of your own pocket for the business. Make sure they are a GST receipt including the supplier’s GST number. Small amounts add up. If you use Xero, consider using the expense claim feature to keep track of these items and reimburse yourself.
- Prepayments. There are a host of items that can be deductible even if they are used after 31 March. The most common example is insurance but this rule also applies to service and maintenance contracts, rent and even advertising. The good news is that prepayments such as subscriptions to journals, postage, rates, road user fees and accounting fees are fully deductible. Talk to us about any prepaid expenses and what if any is deductible for this income year.
- Accounting fees. We couldn’t resist a shameless plug but accounting fees are fully deductible. Why would you do it yourself? You didn’t go into business to be an accountant. You’ll almost certainly pay too much tax and the investment should more than pay for itself.
This advice is general in nature and is not exhaustive. We strongly recommend you consult an accountant to ensure that your personal circumstances are considered. Feel free to call us if you would like a no obligation, confidential chat.