What type of business structure should use?
It is important that you consider the type of business structure you will operate under carefully. Things to consider are:
Protection of your assets
Managing your personal liability
Succession planning
Tax management
The most beneficial structure for your business will depend on your circumstances. We can help you to ensure you future proof your business by selecting the right structure.
What entertainment expenses can I claim?
Generally entertainment consumed away from your work premises are 50% deductible. If you food and drink is consumed at your business premises because you or your staff are working late then this may be fully deductible.
If you travel out of town for work then generally 100% of your accommodation and food costs will be deductible. However if you pay for work relates guests then the expenditure is only 50% deductible.
For more detail refer to Inland Revenue’s IR268 booklet
http://www.ird.govt.nz/resources/3/1/3198db004ba3cf6e881cbd9ef8e4b077/ir268.pdf
What is provisional tax?
If you are self-employed or a shareholder-employee then you can pay provisional tax during the year rather than PAYE. Generally provisional tax is paid in three equal instalments through the year.
By default the amount of provisional tax you will be required to pay is based on your previous year’s earnings plus 5%. However it is important that if you expect your income to increase by more than 5% you contact us to discuss this as you may be charged interest if you underpay your provisional tax.
Do I need to pay tax in my first year of business?
Depending on the type of business structure you operate under and the level of income you earn you may be able to defer paying tax on the income from your first year of trading until the second year. However if this is the case it is important to budget for paying two years’ worth of tax in the second year.
We can help you determine when you need to start paying tax so that you are not penalised by Inland Revenue.
Will I be taxed on the sale of a business asset?
If you have made a depreciation claim on a business asset and you then sell the asset for more than its book value you will be required to pay tax on the profit. However the taxable portion of the profit is limited to the amount of depreciation claimed on the asset. The remainder of the profit is a tax free capital gain.
Should I take drawings out of my business or pay myself a wage?
By paying yourself a wage from your business you will pay your tax as your go through PAYE. Some people prefer this as it reduces the amount of tax they have to pay at the end of the year.
Alternatively when drawings are taken throughout the year and then a shareholder salary is allocated at the end of the year when you know how your business has performed this provides flexibility and defers the tax payment.
Paying yourself a wage from your business also has implications on the type of ACC cover you are eligible for. We can ensure you make the correct choice for your circumstances