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EnableMe's Hannah McQueen spoke to Jack Tame about the challenges that can crop up at the end of the financial year and how to best approach them, saying there are lots of reasons for this. Some of the main obstacles to people not having enough money to pay their tax is that a lot of them put their personal costs through the business, thinking that they might be tax deductable, but actually from an accounting perspective they are considered to be drawings, which means it’s not going to lower your profit for tax purposes.
Hannah says, a lot of people also have very poor cash flow in the business. Tax is calculated on your profit, and there are some outgoings that don’t affect your profit. For instance, if you buy stock, that doesn’t lower your profit, even though it’s a legitimate outgoing for the business. Or if you take some drawings for a family holiday, that’s not a legitimate outgoing for the business, and basically, the reason we struggle to find the money to pay our taxes is that there are lots of ouotgoings that aren’t lowering your tax bill.
Hannah explains, “Your accountant isn’t necessarily putting through all the outgoings that could lower your tax bill, possibly because they are not aware of it. All it means is at the 31st of March and when it comes up to your provisional tax payment is that there’s just not enough money to pay the tax.
“So, coming up to year end you need to collect from all your debtors, and if someone’s not going to pay you, you write the debt off. You also need to deplete all your stock levels and, most importantly, you need to claim every single cost you possibly can, keeping in mind that your business is separate to your personal finances.
Hannah advises that to minimise your tax going forward you need to have a business plan, i.e. a strategy, because you pay tax on your profit and you want to make sure you are maximising all those tax deductions, and you can do this by legitimately pushing more private debt into the business, and if your accountant hasn’t mentioned this to you, they are not proactively managing your tax. She advises paying tax on a monthly basis as having to pay it in one lump sum “kills you” in Hannah’s words, so for more information on financial planning, financial planners Auckland and financial advisors Auckland please go to http://enableme.co.nz .