Slash Your Taxes
Minimising your taxes is not about stuffing your mattress with $50 notes, throwing away your Eftpos machine or finding a dodgy accountant. Nor is it a good idea to make up a complete set of fabricated books right up to 31 March and then bring them into your non-dodgy accountant two months BEFORE the end of the tax year (as happened to me in January this year). It’s about being organised, planning in advance and getting a good accountant who will get to grips with your affairs. A good accountant will also look at your overall long-term position and help you put some strategies in place to reduce your taxes. In addition, the more complicated your affairs, the easier it is to save tax, which is why the richest always seem to pay the least!
Get a good accountant. Of over-riding importance as a first step, get yourself a good accountant with enough experience in tax who has the time and who is interested enough to help you through the maze of tax rules, regulations, customs and practice. I’m still surprised at the huge variation and quality of advice out there. Size, reputation or the amount you pay do not guarantee quality of advice. Many accountants base their advice on a “don’t worry, you’ll never get audited”or short-term brain waves which will come back and haunt you in later years. It’s better to be realistic and sleep at night!
Maximise ALL your Deductions. There are hundreds of different deductions out there and the trick is to make sure you’re claiming everything possible and to the greatest possible extent, whether it’s your use of home claim, newspapers, your travel costs or the work your family does in your business.
Claim all your Credits and Rebates. Thousands are paying more tax than necessaryby not claiming all they are entitled to. Even those with experienced accountants are missing out on thousands of $ in Working for Families Tax Credits, Child Care, Donations, not claiming Income Tax Rebates, the Independent Earner Tax Credit – the list goes on and on!
Excess Income. Yes, it does exist for many still and from the tax point of view it’s what to do with it! If you invest it in the bank, a managed (or should that be mis-managed!) fund, a PIE or a super fund the chances are that someone who doesn’t deserve it will be taking his shovel into your stores, as the saying goes! Unlike Australia & the UK, New Zealand has no Capital Gains Tax, so make the most of it by investing for capital growth!
FBT. A quite unpleasantly high and ridiculously complex tax, many accountants don’t even bother to explain the alternatives to clients. If you’re paying FBT on cars ask your accountant to explain why this is the cheapest option.
Business Structures and Losses. Getting your business structures right is of primary importance from the tax point of view yet many are still operating with historical and quite unsuitable structures. I met a prospective client recently with locked-in trust losses of $125,000 yet he had annual income on which he was paying the top rate of Income Tax. And another last year where the high-earning spouse was not a shareholder yet the business, a LAQC was making big losses. Both these clients had well-known Chartered Accountants acting on their behalf.
Pay Your Taxes on Time. Still the quickest way to increase your overall tax bill, delaying payment is just too expensive. For a client who has just appointed me, over the last 5 years or so, an unpaid tax bill of $3,000 has grown to $9,000 with the IRD’s late payment penalties and interest. Where can you get a return on investment like that?
Finances and Interest. Normally one of life’s biggest outgoings but with proper planning, often the net cost can be reduced, courtesy of your fellow taxpayers! Many business owners have home mortgages, loans or hire purchase debts yet no business borrowings, thereby voluntary giving up thousands and thousands in tax relief. How silly is that?
Income Splitting/Widening the Tax Base. Take the opportunity to spread any income acrossyour family and use a family trust too for maximum flexibility which can also avoid problems with justifying paying wages to family members.
In these days of static or reducing income yet seemingly incessant increases in the cost of living, not many of us can afford not to maximise our net of taxes income so why just pay tax without doing all you can to reduce it? Death yes, taxes maybe! If you think you’re paying too much tax contact Nick on 0800 ASK NICK or email firstname.lastname@example.org.