Congratulations on your decision to run your own small empire! However, you might be wondering about how to handle taxes. Look no further as you can find all the answers you need below.
Sole trader or company?
We find most start ups do not need to register a limited liability company a sole trader is usually suitable.
Setting up a sole trader business structure is a breeze. You can do it yourself online through your IRD login, or you can ask your accountant to help you out. Unlike forming a limited liability company, there are no upfront costs or annual fees associated with establishing a sole trader business. It's a cost-effective option for folks who are just starting out.
Plus, as a sole trader, you'll have more flexibility in paying yourself and won't be subject to as many regulatory requirements as LLCs. As an independent contractor, you need a business structure that allows for greater autonomy and ease of operation. And that's exactly what being a sole trader can provide!
Of course, there are some rare cases where a limited liability company might be beneficial. But from our experience, most sole traders are happy with their choice.
My business is only part time, do I have to pay tax?
You might be wondering if you need to file a tax return, even if you are only part-time. The answer is yes, Unfortunately You do need to file a tax return. But don't worry, we've got your back.
Tax filing Due date
In New Zealand businesses are required to file their taxes by July 7th each year. That's the filing deadline, but not the actual payment deadline. If you need more time to prepare your financials, signing up with Creston Accountants can be a lifesaver. By doing so, the due date for taxes can be extended to March 31st of the following year. So, you'll have several additional months to get your financials in order.
Tax payment due date
When it comes to paying your taxes, the deadline is February 7th each year. Make sure you pay on time, or the IRD may start charging interest and late fees. If you can't meet the deadline, don't panic. You can contact the IRD to make monthly payment arrangements to help ease the burden of debt over time. Signing up with Creston will extend your payment date to 7th of April. Giving you more time to sort out your finances.
What information do I need to complete my tax return.
First things first, you'll need to gather all the juicy details about your income, expenses, and assets for your tax return. And yes, you must keep receipts and invoices to prove your expenses.
Income - Should be easy enough to complie all the invoices you have sent out over the financial year. which starts from 1 April and ends 31 March the following year.
Expenses are super important - they're the things you've spent money on while trying to make some cash. So, make sure you track and record everything, and hold onto those receipts! A simple spreadsheet in Excel or Google Sheets will do the trick - no need for fancy-pants programs that'll cost you money and headaches.
Keep track of any big purchases you make for your business, like a vehicle. Your accountant will need the date of purchase, how much you spent, and proof of purchase. They'll then claim depreciation expenses on your behalf.
So, there you have it - income, expenses, and assets. These are the key ingredients for a successful tax return. Of course, everyone’s situation is unique, so there may be some extra bits and pieces you need to include.
How is my tax calculated?
To give a general idea of how your tax will be calculated, your accountant will prepare a set of financial statements that include a profit and loss statement. This report will detail your gross income (total business earnings), expenses, and net profit, which is calculated by subtracting your expenses from your gross profit (this is called your net profit). Your tax liability will be based on your net profit. As evident from this process, claiming expenses is crucial to reducing your tax liability, and having a solid understanding of what expenses you can claim is essential for all businesses in New Zealand.
The current personal income tax rates in New Zealand are as follows:
10.5% on income up to NZD $14,000
17.5% on income between NZD $14,001 and $48,000
30% on income between NZD $48,001 and $70,000
33% on income above NZD $70,000
Do I need to register for GST?
The good news is that if you're just starting out, you don't have to register for GST unless you're making more than $60,000. But, if you're planning to work with other businesses from the get-go, it might be a good idea to volunteer for GST to show that you're a pro. Just keep in mind that this means you'll have to start charging GST on all your sales and file regular GST returns, which can add to your administrative workload. So, think it over and decide what's best for you and your business!
Do you need an accountant to file your tax return?
Not necessarily. You can file your own tax return using the IRD's online portal. But there are plenty of reasons why you might want to consider hiring an accountant. A good accountant can help you save a significant amount of tax and may even provide you with extra time. Who doesn't love extra time, am I right?
So, there you have it! Becoming a sole trader is a smart move, and filing your taxes doesn't have to be a nightmare. With a little help from Creston Accountants (or a spreadsheet), you'll be a tax pro in no time.
If you need help give us a call on 09-3935651