5 Ways To Minimise Your Tax Bill This Financial Year
Tax time. Regardless of which month of the year we are in, as business owners, tax time is always lurking in the back of our minds.
We know you are probably only just getting over this tax year, especially if your tax bill was bigger than you thought. But it’s never too early to start thinking about next year.
If your bill was larger than you were hoping or you simply want to minimise your tax bill for this year, we’ve got some top tips that might help to make it a bit smaller next time round.
As business owners, we know that tax is always going to be part of the equation. And if you have to pay tax, it’s actually a good thing as it shows your business is making a profit!
So with this article, we’re not suggesting that you try anything dodgy to get your tax bill down. But simply embrace a couple of things to reduce your tax bill legitimately.
Let’s dive in!
Look For Deductible Expenses
You pay tax on your net profit. That’s your gross profit minus any expenses that you incur. So, that means expenses are pretty much the best way of reducing your tax bill.
There are many expenses you can claim in relation to your business. If you drive your car for work, you can claim running costs. If you entertain as part of your business, you can claim at least some of it back in expenses. If you run a home office, you can even claim some of your utility bills and internet usage. You can also claim tax back on any charitable donations you make throughout the year.
It’s important to keep tabs on your outstanding invoices too. If you are owed money by clients or other people you’ve invoiced, and you clearly aren’t going to be paid, you can write off the debt.
While you may want to expense as many things as humanly possible, it’s important to note that some things can’t be claimed as a business expense. If you aren’t sure, check in with your accountant for advice on what is considered a deductible expense before spending up large.
Pay Attention To Depreciation
Over time, the assets your business owns will decrease in value due to wear and tear. In a financial sense, the process of accounting for the loss in value is called depreciation.
This accounting method allocates the cost of an asset throughout its useful life. Depreciation represents how much of the asset’s value has been used to date.
Therefore, it can help you gain some money back on the assets you have bought for your business. Things like computers, vehicles, and machinery all lose value because they become used or outdated. You can claim depreciation on separate assets or group them together if they are of lower value.
The depreciation formula can be quite complicated. Again, this is something your accountant can help you with.
Track Your Inventory
If you hold stock as part of your business, then you’ll need to keep an eye on what’s happening with it. Holding too much stock can mean you have a lot of your capital tied up. But, not having enough could impact your ability to earn at the level you want.
Buying inventory is one of the biggest costs to a business. However, when you have inventory on hand, it is considered to be an asset on your balance sheet. SO, you have to be mindful as that asset can quickly lose its true value if it becomes out of date or obsolete.
Regular stocktaking enables you to understand what’s in your inventory and how much stock you have on hand. That way, you can still maximise your sales without getting stuck with unsellable assets.
You can help to control your tax bills by timing your stock orders correctly. Depending on what you have on hand, you may wish to sell off some of your excess stock before the end of the financial year.
Keep Accurate Records
We know it’s tempting to leave everything until the last minute and then fish out the appropriate records and receipts. But, trust us, it’s much better if you keep accurate records year-round.
If you plan to claim business expenses or depreciation, then you will need to keep the right receipts and paperwork, and if you run a business vehicle, you’ll need to keep a logbook. IRD may not ask you for it, at least not straight away, but it’s easier to have everything in place in case.
Using an online software package like Xero is an excellent way of keeping all your receipts and records in one place. Having a separate bank account for your business and having all incoming and outgoing business-related payments in that also makes it easier to keep track of things.
Do Things On Time
Paying tax isn’t anyone’s favourite thing, but doing it on time can help you avoid any extra interest, or worse, penalties. It’s especially important to keep on top of things if you are paying provisional tax, GST or anything else that requires payment in instalments throughout the year.
Making your payments on time means you only pay what you actually owe and nothing more.
Looking For Some Help To Get Your Taxes In Order?
If you aren’t sure how to minimise your taxes or are worried that you might accidentally do something wrong in your bid to get your bill down, let us help you get it right.
Our accounting services can keep you on the right track all year. Using Xero we’ll ensure all your records are in order. Then at the end of the year, we can help with your tax and GST returns.
Our team are experts in their field and always keep up to date with the latest, so we’ll always know the latest regulations and ensure you are doing things by the book. We’ll ensure that you are paying as little tax as possible but still compliant with IRD.