Prepare For Next Year’s Tax Return Season Now

Tax time may seem like a long way off, but it is not too early to begin thinking about your taxes for the current year. Unfortunately, the old adage is true – you can’t avoid taxes. However, there are some steps you can take to minimise your liability and to maximize your refunds.

Make sure that you are taking advantage of professional services which are deductible. Sure, you can prepare your taxes yourself and handle your own investments and financial affairs. However, hiring a tax accountant and a financial advisor to handle these items may give you a better return or save you money. Additionally, the fees charged by both are deductible expenses. (Note that commissions you pay to purchase shares in not deductible.) Often the deductions will pay for a sizeable percentage of the accountant’s or advisor’s fee.

One of the most powerful tools available is establishing a business. Whether you work a few days a week from your home in addition to your regular full-time job or have a full-time business, you are eligible for a number of deductions.

The main criteria for a business is that your intent is to make money, not indulge in a hobby. For example, if you collect and sell retro toys, comic books or Pez dispensers it needs to be clear that you are trying to make a profit not simply adding to your collection.

Here are some of the expenses you may be able to deduct.

  1. Vehicle expenses

Self-employed people can deduct expenses directly related to their business. For self-employed people the rate is 72 cents per kilometre for up to 5,000 km; any amount over 5,000 km requires a detailed record of expense.

It is also possible to use the “actual costs” option which includes maintenance and repairs in addition to petrol costs for all work-related travel. Just remember to keep detailed records of all work-related driving.

  1. Home expenses

Having a home office offers a number of deductions. The largest deductions are for the interest on the mortgage repayment and the proportion of your home (based on floor area) used for your business.

Some other times which may be deducted include gardeners, cleaner, mortgage insurance, power, repairs, and insurance.

  1. Meals and Entertainment

You may deduct meal and entertainment expenses. Taking a customer or potential customer to dinner to discuss business or to a show as a thank you qualify for a deduction. You can also deduct meal expenses for any staff and contractors as long as you are having business discussions.

  1. Travel

You can deduct expenses for any business-related travel. It is possible to combine business and personal trips however you can only deduct the proportion of the expenses that are business related. Once again it is important to keep detailed records of the expenses and their business purpose.

  1. Hiring Family Members

Consider hiring a family member or children to work for the company. This is only an advantage if the person is at home full-time or is on a lower tax rate. This can lower the total tax bill for the family. The person must actually do work for the company and the compensation must be in line with what the job would pay at other companies.

Some other items that may be deductible include marketing and advertising, certain capital purchases, depreciation, small business liability insurance and legal expenses.

It is important to keep detailed records of all business-related expenses. The IRD has seen practically every trick in the book so don’t make outlandish claims.

Make Investments

Another way to cut your tax burden is to make investments. New Zealand does not have a capital gains tax, so investments made for the purpose of producing capital rather than income are tax free.

There are a couple of things to consider when looking to take advantage of these tax savings.

  • The main criterion is that you are not a frequent trader. You should also have written records to show your intention of making a long-term investment and your intent to hold the investment.
  • It is best to work with a qualified financial advisor, whose fees are generally deductible, in order to avoid running afoul of the IRD.
  • You may be able to deduct any interest on money you borrow to make the investments along with other expenses directly related to making the investments such as financial publications or other financial tools.
  • It is also a good idea to have your financial advisor show you the available tax-efficient investments. Many investments offer better tax advantages than others. For example, passive funds, such as those the track stock market indices have a lower tax rate than a managed fund.

Consider amending your previous tax returns

The IRD allow taxpayers to amend previous tax returns to claim deductions they may have missed. The IRD allows you to go back seven years to file amended returns. Once again, the services of a qualified tax accountant can be a major help in this area.

Paying taxes is an inescapable part of life. However, there is no reason to overpay. The best time to start planning for next year’s taxes is now. Spending some time in preparation and study to develop a plan to reduce your tax burden for the current year and in the future is well worth the time and effort.

Share this article

Leave a Reply

Your email address will not be published. Required fields are marked *