Empower Your Business

Accounting is Just the Beginning

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Maximise your tax deductions on interest on borrowed funds

Are you in business? Do you have rental properties?  Increasing your business borrowings by restructuring your finances can have its advantages.  This video will show you how to maximise your tax deductions on interest on borrowed funds and steps you can take to achieve this.

Watch the maximise your tax deductions on interest on borrowed funds video here.

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7 Reasons to Trade as a Limited Company

7 reasons to trade as a limited companyIt costs a few hundred dollars to form a limited company but despite that, many thousands of Kiwi’s continue to start businesses as sole traders or even worse, partnerships. In more than 30 years of looking after small businesses I’ve seen so many unfortunate and unnecessary situations and countless examples continue to crop up, so here are a few I’ve seen in the last year or so.

 1.    Outstanding GST. It’s a fact that the IRD in NZ are rubbish at collecting tax, so much so that many business owners use the IRD as a source of finance. Take a new client of mine in Hawkes Bay, a husband and wife partnership who now owe $85,000 in GST. Their business is failing but guess what – as a partnership they are fully liable personally for ALL the GST. If they were a limited company they could have walked away. Bankruptcy and ruin beckon……………

 2.    Accounts Receivable. Another husband and wife partnership client has received a demand for $175,000 from the liquidator of one of their former customers, who says they have to repay the money they legitimately received for sales made. Ridiculous maybe, but as a partnership they are fully liable and needless to say, they haven’t got $175,000 sitting around!

 3.    Legal Claim. Another client, a sole trader, was on the receiving end of a totally unexpected claim of $260,000, and guess what, his insurance company refused to pay up! Bye-bye house!

 4.   Partner’s Debt’s. Another client was in a two-man partnership. His business partner ran up debts willy-nilly and then cleared off. Guess who had to pick up the tab for the partner’s debts?

And it’s not just debt or financial ruin that makes a limited company so valuable:

 5.    SelfEmployed Status. We are very lucky in NZ. You can trade as a limited company yet still retain your self-employed status so it’s crazy not to take advantage of this.

 6.    Tax. Both sole traders and partnerships are pretty useless for income-splitting to minimise tax. A company, on the other hand, is far more flexible.

 7.    Ease of Ownership Transfer. It’s so much easier to transfer wealth or assets when you have a limited company. No legal fees or tax issues to worry about!

Business is risky, so why take any more risk than you need to? If you need help with your business contact Nick on 0800 ASK NICK or email nick@abac.co.nz.

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Is this tax-deductible? Home office & travel questions answered

home_office2There are two questions I get asked time and time again when I’m talking to clients about tax:

  1. I work from home. Can I claim all my home expenses, including 100% of my large mortgage repayments?
  2. I am going overseas to visit my relatives/friends, but while I’m there I’m going to do a bit of business too. Can I claim all my airfares and travelling expenses?

So let’s look at both.

See Full Story Here

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How to save tax AND sleep at night

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I once had a client in the UK who used to save tax by never paying any of his takings into the bank. He was a sort of cross between Arthur Daley and Del Boy—a loveable rogue—but I liked him a lot, as he was always cheerful and smiling, no matter what scrapes he got into. Eventually, however, he came to grief; his wife left him because she never had any money to pay their bills and the IRD bankrupted him when they caught up with him!

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Maximising your Tax Deductions

Like it or not, income tax is high in New Zealand. As those of us in business know, it can be a struggle to pay in lump sums especially when the prices of what we buy keep going up, and our customers and clients lack the cash to pay for our goods and services. Therefore, it is very important to make sure that we’ve done all that we can to maximise our tax deductions.

Here are some practical things you can do to place yourself in the best possible position to maximise your tax deductions:
(See full article)

 

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Slash Your Taxes – Converting Private Expenses Into Tax Deductions

New Zealand TaxThe IRD think that those in business get away with murder by claiming all sorts of expenses that are denied to those in a job. Leaving aside the fact that those taking the risks of fueling the economy, paying business taxes and creating jobs deserve something in return, if they think that (and they do, as one IRD official told me this the other day) you may as well do your best to live up to their expectations! Here are six easy ways to convert what are normally private expenses into legitimate tax deductions:

  1. Interest/Finance Charges. Many business owners have no business borrowings but large mortgages or private loans, overdrafts or credit card debts. Most also have invested large sums of money in their businesses and where they operate through a limited company, typically the company owes them a substantial amount of money by way of an advance account. All you have to do here is re-finance your advance account and use the proceeds to pay off your private loans or debts. As any interest paid by a normal limited company is tax deductible hey presto, you’ve now reduced your tax by a lot! There are a couple of other variations too you can use if your circumstances are slightly different so just give me a call to discuss your specific circumstances.
  2. Travel. The key to success here is the purpose and motive for your trip. If the primary purpose of your trip is for business, and any holiday aspect incidental, then you would be able to claim 100% of the cost of the trip (providing you paid for the accommodation, food and any activity costs yourself on the non-business days). If, on the other hand, there are two purposes for the trip, business and a holiday, then you would need to apportion the cost of the airfares/hire car etc. There is a third potential purpose, where the primary purpose of the trip is a holiday and the work aspect is incidental. Here, there would be no deduction for the airfares/hire car but you could claim for the accommodation and meal costs on the business days. With a little forethought and planning, many trips can be built around a business purpose – conferences, fact finds, checking out the competition, and looking for new suppliers to name a few – even the whole purpose of the business (like UK clients of mine who used to travel around the world every year on a round-the-week air-ticket with unlimited stops) can be designed around tax-deductible travel!
  3. Motoring Costs. In these days of high motoring costs a little subsidy from the IRD could come in handy. There are many options and it depends on what business entity you operate, your private v. business mileage, whether you work from home, have another car available, how expensive your vehicle is and how you work or operate, but either which way there is normally scope to get some GST back or a tax subsidy on your running costs or depreciation. There are also a lot of myths and half-truths floating about out there, and worse, many business owners (often, I’m embarrassed to say, encouraged by their accountants) stick their head in a bucket of sand and just ignore all the rules, so if it sounds too good to be true, it probably is! Seek advice from a practical accountant who isn’t afraid to tell you what you can & cannot get away with!
  4. Use of Home. Just about the biggest grey area of tax, those with high outgoings e.g. a substantial mortgage, can reduce their taxes significantly if they work from home and even if they have business premises but still work from home by a little. How much of your home do you use for business? A dedicated office and/or workshop? Your garage or sheds for a business vehicle or for storage? Toilets, kitchens, hallways or dining rooms for both business and domestic purposes? Maybe even a bedroom if you’re in the right business? Do you have a cleaner or gardener to keep things looking spruce for visiting clients or customers? Sometimes it’s obvious and sometimes a lateral approach is required, as often. For example with mortgage interest or rent, rates, power, repairs and maintenance the tax saved can be huge. Sometimes it’s a smaller saving that you make each time but that will add to quite a bit if you do it consistently, like claiming for a portion of your refuse cost (either the service you pay for or the orange sacks you buy).
  5. Entertaining/Meals Out. A 50% deduction is better than nothing! Providing there is a clear business motive and you keep good records e.g. identifying the individuals entertained you can claim for corporate boxes or marquees including entry costs at outside events, accommodation, pleasure craft and food and drink or coffees.
  6. Sponsorship can be a good way to get a tax deduction for your hobbies or interests, providing there is a clear intention to promote your business and you are not gifting the money, as otherwise it will be a donation or gift and not sponsorship where no deduction can be claimed. You will need to show a real connection between the outgoings and your business in terms of the benefits to your business and how it is heavily and effectively promoted. The expenditure should also be part of your overall marketing strategy and ideally, related to your actual products and services. If you get it right, any private benefit you receive will be incidental and therefore ignored. As always, seek advice from a good accountant who will always tell you what you might not want to hear!

Tax is tax and a necessary evil, but why pay more than necessary? If you need help to reduce your tax bill contact Nick on 0800 ASK NICK or email nick@abac.co.nz. If you’ve gone to all the trouble and expense of being in business you may as well maximise your returns!

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Enthusiasm & Persistence Pay Off

I recently took on a new client who is employed. The client had been using a largish established firm of accountants in Hastings for many years.

At first, why he wanted an accountant puzzled me, as normally my dealings are those with people in business whose affairs are complex. However, not being one to say no to someone who wanted to use my services (and of course, I never forget it’s a privilege for me to act for my clients), I set to with my normal enthusiasm to review his affairs and see if there was anything that could be done for this client beyond the norm.

When going back over the client’s tax history, year by year, nothing immediately jumped out at me, but I carried on, eventually going back to 2004, when much to my pleasure I found that my diligence had paid off, and that there was a tax refund available to cover my fees! Now, I thought, that’s tricky, as 2004 is normally too far back to get a tax refund, so a little craftiness was required! I persisted and thought up a way by which there was a good chance of success, and put my plan into action. The outcome? Success!

Now, of course, there’s no point in me getting my client a refund if it all goes in my fees, so with another think managed to come up with a second much larger tax refund! The result? One happy client who had already recommended me and my reputation for thoroughness and astuteness further enhanced!

Now at this stage you might be asking why the client’s existing accountants, a firm of Chartered Accountants with a good reputation, several partners and lots of experienced staff had not helped this client to get his money back from the IRD. Too laid back? Not really interested? Familiarity breeds contempt? We can only speculate, but as I tell my clients, often just being INTERESTED in one’s clients or customers is enough to differentiate you from your competitors!

If you would like me to look at your tax and/or business affairs with enthusiasm and persistence beyond the norm, give me a call on 0800 ASK NICK or send me an email

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The 10 Most Commonly Overlooked tax Deductions

Paying tax may be a necessary evil but why pay more than necessary?

  1. Use of home as Office. Whether you have business premises or not, you can still claim for some of your home expenses if you do some work at home and let’s face it, what business owners don’t these days? In addition, most claims for use of home are too timid e.g. not claiming for gardening expenses – it is a huge grey area!
  2. Home Telephone. If you make or take business calls at home, you can claim 50% of the line rental even if the business calls are way less.
  3. Interest Costs. 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.
  4. Motoring Costs. FBT is nasty and can be considerable. Always consider the alternatives (such as mileage allowances) or if FBT is unavoidable, get an older car just for business purposes where the tax saved on the running expenses will greatly exceed the FBT on 20% of the cost. If you’re self-employed or in a partnership compare the tax deductibility of the mileage allowance against the total of depreciation and running costs – often, the mileage allowance is higher!
  5. Travel Costs. If the primary purpose of your trip is for business, and any holiday aspect incidental, then you would be able to claim 100% of the cost of the trip (providing you paid for the accommodation, food and any activity costs yourself on the non-business days).
  6. Donations. I still meet people who have not claimed rebates for school fee donations or child care. If you have not claimed in previous years you have four years to claim.
  7. Paying Family Members. If your kids or spouse work in your business make sure you are paying them for the work they carry out (a sole trader is a nuisance here as pre-approval from the IRD is required for wages to your spouse). If your spouse is a director but doesn’t do enough work in your business to justify a salary pay them a director’s fee for the risk involved in being a director.
  8. Incidentals such as newspapers, computers at home, subscriptions, magazines, club memberships can all add up.
  9. Guarantee Fees. If your spouse doesn’t work in the business and is not a director but nevertheless is guaranteeing borrowings or lines of credit, pay them a guarantee fee.
  10. Assets owned before going into business can be claimed on commencement of business and often give rise to large tax rebates. If you have a company you claim GST as well if they were not bought second-hand (there are some detailed rules here so ask first!).

As usual, seek advice on your specific circumstances to avoid disappointment!