As a small business owner you work hard for the money, and are always looking for a way to save because every dollar helps. When it comes to tax time, we’ve got a few tips and tricks that you can put it place to help lower those small business taxes.
Get good online accounting software
If you haven’t already, it pays to invest in a decent online accounting software program like MYOB and Xero. They will instantly take the chore of accounting by making your life a lot less stressful, especially come tax time.
The beauty of these programs is that they provide up to date details of your business’ financial position, so you can see how you are tracking without having to wait till tax time.
Most of these online accounting programs allow you to share your financial details instantly with your accountant. This helps to save time and allows your accountant to get a ensure your finances are in order and not missing out on any deductions, reducing the amount of tax you pay,
Structure your business
Check that your business activities are structured correctly with the proper legal structures in place. This is something you should revisit regularly to make sure you not paying more tax than what you need to be.
Different business structures and the type of legal entity you have set up for your business will help to determine which bracket your business falls into and the amount of tax you need to be paying.
It’s always a wise move to have a chat to a professional like your accountant when deciding which legal structure is going to suit your business’ situation best. Things like your future goals both as a business and on a personal level will have a significant impact on the kind of business structure to operate as.
Have a separate account for tax payments
Thinking ahead when it comes to lodging your business’ tax payments can help prevent a lot of headaches and financial issues down the track. Being prepared and planning ahead means you won’t get a shock if you do owe money.
Having the savings there ready will also help save on things like late fees and penalties if you didn’t have the money there to cover them. By having a separate account that pays some interest, you can put some money aside each week, ready if you need it.
If there is a shortfall when you are making your tax payment, be sure to get in contact with the IRD to establish a payment plan to avoid excess fees and charges.
Avoid double taxing
Running your own business means there is a lot going on, making things like tax and finances at times overwhelming. One thing to keep in mind is when you are paying yourself a wage, that you know about how the tax system works and what you need to do. It’s an easy enough a mistake to do, but you could yourself accidentally paying the wrong amount of tax and cutting yourself short of an income.
First thing to look at is your provisional tax, which assists with your income tax and is required by the IRD. This is collected in instalments throughout the year and not as a lump sum at the end of the tax year. For some small businesses just starting out, they may find that they don’t need to pay provision tax in their first year, as an alternative your income tax will be due once your total amount of tax for the year is calculated.
This is an area of tax you need to be aware of and plan for. The payment can happen in your second year of business and place yourself in a tricky position financially where you may be liable for the income tax of your first year and the provisional tax of your second year of business too.
A way to avoid getting stuck in this situation is to make voluntary payments to the IRD as you earn your income. This becomes a gradual deduction that doesn’t damage your savings account all in one big hit. For some small businesses, not having this plan in place has been the difference between staying in business or closing their doors for good.
Store your receipts
If you plan on making deductions for your business, the IRD will require you to maintain some form of proof. If your business was audited and you failed to produce these, it could result in your business not being entitled to claim deductions through the IRD and other penalties.
With all the technology and apps available, it’s easy enough to scan your receipts into your online accounting program or a cloud. That way they stored securely, won’t fade over time and you know exactly where they are being kept, one less thing you need to worry about at tax time!
Just like getting your business’ taxes sorted, at BizCover we understand how important it is to save time and money. Experience insurance made easy today ,where we do the shopping around for you, so you can get back to doing the important stuff like running your business.
*As with any insurance, cover is subject to the terms, conditions and exclusions contained in your policy document. The information contained on this webpage is general only and should not be relied upon as advice