As the end of another financial year looms, many New Zealand small business owners begin preparing to submit their tax obligations to the Inland Revenue. With a list of requirements and several boxes to tick, tax time is often seen as stressful and confusing for small business owners. But with a little organization and the right help, it is possible to take the stress out of tax time. Follow these three steps to prepare ahead of tax time and ensure your business is compliant.

1.    Keep accurate records

Whether you’re a small business owner, contractor or self-employed, you’ll need to hold on to your tax records for at least seven so you can pass them onto Inland Revenue if you’re audited. This includes invoices, receipts, wage books, petty cash, banking records, vehicle logbooks, asset registers and depreciation schedules, as well as emails relating to business expense claims – such as travel expenses. If you’re GST registered, you’ll also need tax invoices for expenses to claim back the GST.

It's good practice to at least record the date, description, cost, and supplier for everything you buy for your business. If you’re using an accounting software system, store copies of receipts online or use MyIr to keep a copy of everything you need to send to Inland Revenue.

Remember, you must:

• Keep all expense receipts and invoices you receive.
• Keep copies of all invoices you send out.
• Keep records of any other types of income or expenses, like dividends or rental income.
• Try to pay for anything that could be a claimable business expense through your business account, so you've got a paper (and electronic) trail.
• Keep all records, either electronically or in paper form, for seven years.

2.    Find a system that works for you

To ensure your tax obligations run smoothly at the end of each financial year, set up accounting systems to help you manage your business’ finances. Whether you choose to use an accounting software program, such as Xero or MYOB, or you prefer to use a manual spreadsheet system, it’s vital you keep accurate records of everything relating to your business.

• Accounting software can help with things like invoicing, provisional tax and GST calculations and filing with the Inland Revenue, as well as record keeping of expenses. Once set up correctly, accounting software saves you time and ensures your calculations are always correct. You can also share access with your accountant to make end of year filing more efficient.
• Some business owners prefer to use manual spreadsheets for record keeping and, provided you maintain accurate and up to date records, this system can work well in helping you keep track of income and expenses.

3.    Know what you can and can’t claim 

All self-employed people, including contractors and sole traders, can claim expenses against their income. Business expenses can include:

• Vehicle expenses, transport costs and travel for business purposes
• Rent paid on business premises
• Depreciation on items like computers and office furniture
• Interest on borrowing money for the business
• Some insurance premiums
• Work-related journals and magazines
• Membership of professional associations
• Home office expenses
• Work-related mobile phones and phone bills
• Stationery
• Work uniforms
• Tax agent’s fees

You can also claim for certain expenses if you own an investment property, such as:

• Repairs and maintenance (but not renovations that substantially improve the value of the property)
• Professional services fees, like accountants, lawyers, or property managers
• Rates and insurance
• Mortgage repayment insurance
• Vehicle and travel expenses when you travel to inspect your property or do repairs
• Depreciation on capital expenses, like whiteware, appliances or heat pumps
• Legal fees involved in buying a rental property, provided the expense is $10,000 or less

There are also rules around what portion of business expenses you can claim so it’s important you familiarize yourself with these details by accessing the Inland Revenue website or get help from your accountant or tax agent.

For more financial advice, tips and trips, follow Mortgage Express on Facebook or check out our blog on the website.