Tips to Survive the End of the Tax Year
IMPORTANT: This post is specific to New Zealand. If you are not a New Zealand business/taxpayer then it is probably not applicable to you.
The 2013 tax year ends in just a few days – over this coming Easter weekend for the vast majority of taxpayers. A few minutes of preparation now could save you hours of grief (and expense) later. Here are five things that you should spend a few minutes thinking about BEFORE 31 March that could save you time or tax:
1. Do an Inventory Stocktake
If your business has material that is consumed in the process of earning income (manufacturing businesses) or you purchase goods for resale (retailers) then you should do a stock-take at the end of business on 31 March. It’s Easter Sunday this year, so you may have all weekend to take care of it (depending on your trading hours). Leaving this until later in the year makes things rather difficult (and leaves you open to accusations of tinkering). If you deliver service or are a tradesperson you should also think about unbilled work – do you have stock on a customers site that you are in the process of installing? Do you have a job that is 50% complete but won’t be invoiced until April? All these things need to be noted down.
2. Write off Bad Debts
The IRD states that you can’t take a deduction for a bad debt until you have actually written off the debt in your ledger. So now would be a good time to go through your outstanding debtors and actually write off those who you reasonably believe have stiffed you. As long as you can objectively conclude that there is no reasonable likelihood that the debt will be paid you can write it off and claim it as a deduction and reclaim the GST (if you are on the invoice method). This doesn’t mean that you stop trying to collect, it’s just an active realisation that your chances of collection have reduced.
If your business gives product or service on credit then you most likely have had an issue with collection in recent times. It is vitally important that your customer engagement process is designed to ensure that you get paid every time, and when a customer gets into trouble, that you can collect not just what was originally owed, but get paid for the time and expense of chasing the debt (which can be huge). We have access to the best process in the world for getting this sorted – so please contact us for more information.
3. Review Shareholder’s Account
If you have a company then you need to make sure that your shareholder current accounts are not overdrawn on 31 March. Once you have allocated any shareholder salary and accounted for drawings and other adjustments, if you Shareholder Current Account is overdrawn (that is, you owe money back to the company) then you will have to pay the company interest or pay Fringe Benefit Tax. It’s not a major issue, but creates extra paperwork that you and your accountant would probably prefer to avoid! If you are a sole trader, partnership or Look Through Company then this doesn’t apply to you.
4. Consider Charitable Donations
If you are planning to make any charitable cash donations soon, doing so by 31 March will allow those deductions to be included in the 2013 tax year. Otherwise, you will have to wait a whole year to get the tax credit (for companies) or tax rebate (for individuals). Note that you can not claim a deduction/credit for donated goods or services – only cash paid during the tax year. It’s important to note that there are limits to what you can claim for charitable donations, and especially in private companies this can be tricky. So we generally recommend that donations be made personally rather than from the company.
5. Pay Dividends
Finally, and this won’t apply to most people, if you have a company with Imputation Credits that date back to 31 March 2012 then the last day that you can impute dividends at 30 cents in the dollar is 31 March 2013. If you miss this deadline then you can only impute the dividends at 28 cents in the dollar. Now this is a tricky area and there are penalties for over calculating your dividend – and in some cases it is better to just take the lower imputation later, so check with your accountant before making any rush decisions.
So that’s it – your quick guide to 5 things you should look at now before the end of the tax year. Feel free to contact us if there is anything that we can help you with.