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3 tips to prepare for the Tax Year as a Small Business Owner.

It's that time of year when invoices start coming in, and your accountant may be letting you know about upcoming tax payments you have. As a small business owner in New Zealand, staying on top of your finances is crucial for your business's success and sustainability.

Preparing for the upcoming tax year is essential to managing your business's financial health. Tax obligations can be complex, but with careful planning and organization, you can navigate them effectively while maximizing your financial resources. As a fellow business owner in New Zealand, I understand the challenges of managing finances, especially when tax season rolls around.  In this blog post, we share 3 easy strategies we use to help us prepare for the tax year ahead.

A piggy bank standing alone in a white room
Maintain Accurate Records.

Good record-keeping is essential for effective tax preparation. Keep detailed records of all your business transactions, including income, expenses, invoices, receipts, and bank statements. Using accounting software or hiring an accountant can help streamline this process and ensure accuracy. We have an accountant and use Xero, which we reconcile weekly. By working with our accountant, we understand how to code our expenses appropriately and feel peace of mind knowing she double-checks and corrects everything before filing our GST and tax for us, and following up on anything that needs clarification. Our accountant also showed us how to navigate Xero. Maintaining organized records throughout the year saves time and effort when preparing your tax returns. Our recommendation: Find an accountant and accounting software that makes you feel at ease through every interaction. If you feel unheard or confused - look elsewhere.

Regularly review your financial performance.

It's always a good idea to review your income against expenses, identify areas for improvement, and set realistic financial goals for the upcoming tax year. It can be easy to spend money without keeping track of where your income is going.

Understanding your business's financial health will help you make informed decisions and adequately prepare for tax obligations. Every dollar saved through tax deductions and credits is a dollar that can be reinvested back into your business, fueling its growth and success.

Set funds aside for Tax, GST and ACC.

Depending on your business structure and income level, you may be required to make quarterly provisional tax payments and pay GST regularly, as well as those end-of-year Income Tax and ACC levies. We have found the following actions have helped us manage these funds.

  • Separate bank accounts for all. So, we have a Tax bank account, Provisional Tax bank account, GST bank account, and ACC levies bank account.

  • Transfer funds from every invoice to these bank accounts. For every paid invoice or purchase we receive, we make sure that the GST and tax are transferred immediately to their allocated accounts.

If you're unsure of your tax obligations, call IRD to discuss your circumstances or speak with your accountant for more clarification. Some things to remember to help with Tax, GST, and ACC levies.

  • If you are GST registered, ensure GST is added to your invoices/sales (either on top or into the pricing). This way, you know how much to set aside for GST from each sale/invoice, and it's not coming out of your profits. REMEMBER you can only charge customers/clients for GST if you are GST registered.

  • ACC levies depend on your Industry Classification Unit and Employment Status, and your first invoice is received within 2nd year of business (for example, this year, you would have received a bill, which would be for the financial year of April 2022 - March 2023). You can estimate your levies to find out how much you should set aside for ACC,

  • To prepare for your tax, set aside at least 10% of each sale/invoice directly to your tax bank account or directly to IRD (to avoid the temptation of touching those funds). NOTE: Sometimes, you may need to pay income tax for your first year in business at the same time as paying provisional tax for your second year in business, so saving money throughout the year will be a lifesaver.

    • If your tax ends up being less than what you've set aside, you will have extra savings in your bank account or could be owed a refund.

    • If you need more to cover the total tax owed, you will at least have a good portion of it set aside to pay towards your tax bill, so you won't feel overwhelmed by an amount that is too large.

How do you feel now about preparing your business for the tax year? By taking proactive steps, seeking professional support, and staying organized, you can navigate tax season with confidence and ease. As a business owner, you're already equipped with the resilience, determination, and passion needed to succeed. Remember, you're not just managing finances but building a foundation for long-term financial stability and success.


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