Accountants and a small business owner share their top tips for preparing for tax time.
The tax year ends on 31 March so if you haven’t yet started your prep, now’s the time.
The Inland Revenue Department (IRD) outlines helpful information about income tax for business owners, including tax rates and balance dates, on its website. We’ve also compiled practical tips from accountants and a small business owner for making the most of tax time.
Get organised and make a forecast
A little organisation goes a long way, says Andrew Higgs, Senior Manager at Lighthouse.
“Gather all necessary documentation, such as bank statements, invoices, bills, receipts and any other documents your accountant always requests,” he says. “Make sure all reconciliations are completed, invoices and bills are entered in the system, fixed asset purchases and depreciation are recorded, and bad debts are written off.
“Then prepare a budget forecast to make sure you are set up for success. Not everything goes as planned, but having a clear roadmap helps a business manage any problems that arise.”
Claim vehicle expenses
If you use your vehicle solely for business purposes, you could claim the full running costs as a business expense at tax time. But if you use your vehicle for both business and personal reasons, you can claim only a portion of the total costs.
Claiming business vehicle expenses starts with keeping a logbook, which you must keep for at least 90 consecutive days. You can use the IRD’s template, or find a vehicle logbook or mileage app with the functionality you need.
But if tax time has crept up on you, there is an alternative solution, according to Butch Mawdsley, Director of REB Group.
“You can put the address details of business meetings into a spreadsheet and work out the distances using Google Maps,” he says.
Read our full guide to claiming work-related vehicle expenses at tax time.
Automate your financial management
Anthea Digby-Smith, owner of hair salon and online beauty retailer Sable, previously told us about her strategies for dealing with change.
One of those strategies was investing in a stock management tool to make auditing stock just that little bit easier – and her advice for tax time is similarly aimed at streamlining the process.
“Try to automate as much as you can by using Xero or MYOB,” she suggests. “A payroll company has made my life so much easier. And find a stocktake system that works for you and can easily be updated every year.”
Consider shifting your tax deadline
Eligible businesses can also change their tax deadline.
“You can apply to change from the usual financial year to a ‘non-standard’ year, which will be considered on a merit basis,” says Stuart Ruddell of JBM & Associates Limited.
“For example, many farming and agricultural businesses have different tax dates due to the seasonal nature of their business.”
Keep track of missed payments
Lighthouse’s Andrew Higgs also recommends taking notice of any missed provisional tax payments during the year.
“If you have missed any payments, discuss your options with your accountant to minimise any interest and penalties the IRD could charge once your returns are filed,” he says.
“Make a plan to manage your cash flow when those tax payments become due. This could be via tax pooling or a debt facility to help manage cash flow slumps during the year.”
You might also consider funding such as a small business loan if you expect that meeting tax payments might cause gaps in cash flow required for other expenses.
Reach out if you’ll miss the deadline
Lastly, it’s worth remembering that sometimes not everything goes to plan.
That’s why, if you’re unsure about meeting the tax return deadline for any reason, Geoffrey Hughes of Hughes Judd Accounting suggests you contact the IRD in advance to explain your situation. Far better to be transparent about issues affecting your business than to avoid the problem.
A little extra effort ahead of tax time can put your business in a better position to start the new financial year on a productive note.
If you would like to understand these tips better or are unsure about how they might apply to you, reach out to a qualified tax adviser.
Tax time is a chance to holistically review your finances. Talk with a specialist from Prospa about how a Prospa Line of Credit can help you boost cash flow and make business happen in 2023.
