With the end of the current year here already, the best advice we could give now is to plan for your tax for 2020/2021. Easier said than done you will probably be thinking because how will you know what to do and when to do it?
Here is a list of what you should be thinking about in order to have a ‘good’ tax year every year.
First of all remember to keep your records in an easy format that works for you. Electronic records are fine but store away copy invoices for income, tax invoices and receipts for purchases, insurance invoices and all business/personal related expenses generally. Stocktake records, credit/debit notes and vehicle log books – keep them all for at least seven years in case of a review by the Inland Revenue.
Well that’s the easy bit – what do you particularly need to look at to make the process of completing your tax return a smooth and trouble free exercise?
(Kind of in a rush? Save this checklist as PDF)
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Writing off Bad Debts – they have to be written off before 31 March and you must be able to show that you have attempted to recover them and there is no chance to do so – keep the records.
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Business expenses paid from your own funds – keep track of these as they can be easily overlooked.
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Bonuses or holiday pay – if you pay these to your employees within 63 days of 31 March they are deductible in the tax year – if not they have to be claimed in a later tax year.
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Fixed Assets – make sure purchases are in your schedule and that any you have disposed of are removed (This excludes anything under $500 GST exclusive – they can be an expense.
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Trading Stock – if yours is more than $10,000, you need to do a stocktake to confirm its value, being the lower of; cost or realisable value. If it’s less than $10,000 you could value it your opening stock value and no physical stocktake is necessary.
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Repairs and Maintenance – make sure you get this done prior of the end of the tax year so you can claim the deduction in the year it occurs.
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Shareholder salaries – these need to be realistic for shareholder/employees. For family members who work in your business the wage must equal the work they do. The same goes for the self-employed and you must be able to show that money you pay your spouse for example is for work they are actually doing – Inland Revenue requires you to be approved to do this.
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Prepaid expenditure is only deductible to the extent that the services have been performed – so if you have prepaid for repairs, they are not deductible until they are completed.
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Entertainment – make sure that you are identifying your costs. Generally these are 50% deductible (if enjoyed by the staff at a staff function for example) but if Staff have the discretion on when to enjoy hospitality it becomes Fringe Benefit Tax.
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Vehicle costs – make sure your log book or records show how much vehicle use is for your business and how much for you personally (i.e. if it’s not a company car).
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Donation tax credit – Don’t forget that you can claim on an IR56 all your donations up to 33.3% (up to your taxable income) and if you donate by Payroll Giving you get the benefit immediately as a net reduction (PAYE).
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Home Office – if you are using an area at home for an office or as storage you may be able to claim part of the overall home costs as a business expense. This is usually based on floor area and the expenses range from power, to mortgage interest and depreciation.
Remember – this is a quick guide to some of the tax deductions you can claim – there are others that your accountant can help you to understand and the Inland Revenue website is a useful resource for this.
