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7 Tax Planning Strategies to Walk Through with Your Accountant

Tax planning can feel like a special thorn in your side as a business owner due to its complexity and highly technical nature. The tax laws in a country like New Zealand are also ever-evolving, with frequent adjustments that demand companies to plan their finances and operations in what often feels like too short an amount of time. 

7 Tax Planning Strategies to Walk Through with Your Accountant

But as an entrepreneur, today you can practise looking at tax planning as more than just an administrative burden you have to get around to. Effective tax planning not only helps a business comply with the laws of the land; it also strategically enhances financial management, too. Businesses that know how to optimise their tax planning can free up capital that might otherwise be tied up, and they can use this capital in turn for reinvestment and growth.

If you’re currently looking for ways to improve tax planning at your company, hiring a competent accountant is a good first step. On top of managing your books and compiling tax returns, a good accountant can provide you with strategic advice that can significantly reduce your business’s tax liabilities while maintaining full compliance with the law. Their expertise and guidance are indispensable, especially for business owners who get nervous about the accounting- and finance-related aspects of entrepreneurship. Businesses without dedicated accounting departments can always look for accountants Dunedin residents trust at local accounting firms, and may find outsourcing their accounting work an effective and cost-efficient measure.

This feature intends to explore some effective tax planning strategies that will be particularly beneficial under NZ’s tax system. If you’re a Kiwi entrepreneur, consider discussing these strategies with your accountant so that you can better prepare for the future, reduce your tax liabilities, and improve your business's overall financial health: 

1) Determining an Appropriate Business Structure

One of the first decisions you'll face as a business owner is choosing the right business structure for your company, a decision that can significantly impact your tax obligations and benefits. 

Structures vary from sole traders and partnerships to limited liability companies and look-through companies (LTCs). Each structure has its own unique tax implications; for example, a sole trader’s income is taxed at personal income rates, whereas an incorporated company pays tax at the corporate rate, which might be lower. Discussing the pros and cons of each structure with your accountant can lead to substantial tax savings and influence your business’s cash flow and personal liability.

2) Deferring Income

Deferring your income to the next financial year can be quite advantageous to you if you anticipate being in a lower tax bracket in the future, or if tax rates are expected to decrease. This strategy involves delaying invoices or the sale of assets until after the end of the tax year. It's a simple yet effective way to manage your tax liabilities, but it requires careful timing and planning to ensure compliance and optimise benefits.

3) Accelerating Expenses

Conversely, it’s also possible to decrease your taxable income by incurring deductible expenses in the current tax year. This could involve making purchases of necessary equipment or supplies earlier than planned, or prepaying expenses such as rent or insurance. Your accountant can help you identify which expenses you can and should accelerate to maximise your deductions without disrupting your cash flow.

4) Maximising Deductions and Credits

Another crucial aspect of tax planning involves ensuring that your business makes the most available deductions and tax credits. New Zealand businesses have access to various incentives to reduce their taxable income. For instance, the Research and Development (R&D) tax incentive allows businesses to claim a tax credit for eligible R&D activities, aimed at encouraging innovation and technological advancement. 

In addition, specific industries may qualify for unique deductions that can lessen the tax burden on their constituents. Your accountant can make sure that you are not only aware of these opportunities, but are also positioning your business to qualify and claim them effectively.

5) Retirement Planning

Contributing to retirement savings plans such as KiwiSaver can provide immediate tax relief for business owners and their employees. These contributions are tax-deductible and can reduce the taxable income of the business while promoting long-term savings that can support your financial security well into the future. Engage with your accountant to determine the most beneficial way to structure contributions that align with your business’s financial planning strategies.

6) Estate and Succession Planning

For many business owners, particularly those running family enterprises, planning for the future involves making decisions about the transfer of business ownership and succession. Estate and succession planning is not only about preparing for the inevitable, but also about managing potential tax implications that can affect the business’s future viability. 

In New Zealand, while there are no longer estate taxes, there are still considerations such as capital gains implications and transfer duties that may arise. Effective planning with your accountant can help mitigate these costs and facilitate a smooth transition when the time comes.

7) Keeping Good Records

Last, but definitely not the least, accurate and comprehensive records serve as the foundation of effective tax planning. Good record-keeping makes it easier to prepare financial statements and tax returns, and it also supports your claims in case of a tax audit. In NZ, the Inland Revenue Department (IRD) requires businesses to keep records for a minimum of seven years. Ensuring that all transactions are well-documented and easy to access can save your business significant time and resources, as well as reduce the stress associated with compliance and tax filing, so don’t remiss in talking about the best record-keeping practices with your accountant. 

Suffice to say, effective tax planning is an ongoing process that requires attention and expertise. You’ll want to seek the assistance of a knowledgeable accountant to implement these strategies and turn otherwise bothersome tax planning chores into opportunities for business growth. Once you commit to proactive tax management—of course, with all the necessary help from an expert—you’ll be well on your way to enhancing your business's fiscal health both now and in your future years of operation. 

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