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Plan now for year-end tax 19 Feb 2014

With a bit of planning, you can reduce your tax and your year-end accounts can be hassle-free. Here are a few tips.

Bad debts

Look through all the debts owing to you. Could any of them be considered “bad”, in other words, is it likely you won’t get paid? To classify them as bad debts, you must have taken reasonable steps to get paid. If yes, write them off now. If in doubt, call us. If you procrastinate and don’t get around to identifying your bad debts until after balance date, you won’t be able to claim them as expenses against your 2014 income.

Questionnaire

We will be sending you a list of questions. They help us to ensure you comply with all statutory requirements, so please answer all the questions. You can put N/A if the question doesn’t apply to you. Please don’t leave blanks.  If you have any doubts about how to answer any of the questions, put a little cross by each of the questions and then either call us or make a note to discuss the questions with us when you see us next. Please sign the questionnaire.

PIR

Do you have investments in your own name which require you to provide a tax rate (called a PIR) for the investment company to use for the coming year 2015? If yes, use the right rate. If you have a 31 March balance date, work out the highest rate of tax you paid for the years to 31 March 2013 and 2014. Choose the lower of the two years. If you’ve not yet had your accounts done for 2014, use the rate for 2013, until your 2014 tax return has been completed.  

For example, your taxable income for 2013 was $50,104. You pay tax at 30% on the last $2104. Your PIR based on 2013 is 28%. For the 2014 tax year, you find out your income is $37,111. The top tax rate on this income is 17.5%. Your PIR for the coming year (2015) is based on 2014 and is 17.5%. If you have previously told the investment fund to use 28% for 2015, get this corrected to 17.5%. 

If you have an amount invested, yielding an income of more than $22,000, call us as this could push you on to a higher PIR.

Shareholder salaries

If you’re a company, we need to know how much salary to pay you (on paper, of course). Life gets complicated. You used to be able to get into trouble if you paid yourself too much salary from  your own company. You still can. Some years ago, a pharmacist paid himself about $15,000 from his rental company. A court found that this was too much for the work he had done and treated part of the income as belonging to the company.  You can also pay too little. Make sure you set your salary at a rate which is realistic for what you do. Want a guide? How much would you pay someone else to do the same job, including the management you undertake? If needed, we’ll discuss this with you.

If you’re working full time for your company, you can argue – if you had been working for yourself and not through the company – all the profit would have been yours. IRD will generally accept this and you can pay all the profit to yourself, if you wish. Note the important thing is working full time. If your company is primarily investing it is most unlikely you’ll be working full time in it.

Accounting systems

Do-it-yourself, without first conferring with us, is a sure way to increase the cost of our services. Please, find out from us how we want accounting data presented, if you don’t already know.

Use of Money Interest

UOMI is a huge money spinner for Inland Revenue. Pay as little of it as you can. If you, as an individual, pay more than $50,000 of tax (after taking off tax deducted at source), you’re in the UOMI net. If any of the three provisional tax instalments have been too low, IRD will claim UOMI on the shortfall. What can you do about it? Make a reasonable estimate of your taxable income for the year. If it’s up compared with last year, calculate the tax you would expect to pay. Take two-thirds of this and compare with the two provisional tax payments you’ve paid so far. Top up if needed and round up your payment as interest might already have accrued.

Stock

If your sales are less than $1.3 million, you don’t have to count your stock if it’s worth less than $10,000. You can use the same figure as last year. What do you do if this applies to you? Either nothing or, if you think your stock is down, you may count and value it to set a new low figure and save some tax. For those who have to count stock, unless you can prove the market value of any item is lower than you paid for it, you must value your stock at what it cost you, including costs incurred to get it on to your shelves. The way to prove a stock item is worth less than you paid for it is to compare it with the amount your competitors are selling it for. If you can’t do this, you probably can’t prove the item is worth less than cost.

Plant

If you’re no longer using some pieces of equipment and it would cost you more than they are worth to throw them out, you can write them off. If the amount is significant, give us a list when you see us. If it’s small it might not be worth the cost of our time to do the write-offs.

Travelling soon?

Advance payments for travel are fully tax deductible. Pay before balance date to reduce this year’s tax.

 

 

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