Having a wodge of cash in your company bank account makes business a nice place to be. More than anything it gives you that mental time out on an otherwise dreary day. Typically I imagine getting all materialistic and spending those savings at least three times over (usually visiting the world’s best surf breaks, upgrading my wife’s scooter to a Range Rover Evoke and investing the money back into my business) so it hits particularly hard when, in reality, I end up having to spend it all on only one thing; dirty old tax.
Don’t get me wrong. I’m not one of those people that gets unhinged ranting about the unfairness of tax. I actually believe that paying tax is one of the most charitable things I can do to help save New Zealand from a third world economy but this article isn’t about saving the country (or the whales).
What it is about is saving another species; business owners who’re growing so fast that they ignore their tax. If you’re one of them, you will have tuned out right about now because no one wants to relive that excruciatingly painful experience. Recovering from tax arrears is almost impossible because the cumulative effect of IRD interest and penalties can easily add an extra 55% to your tax bill.
Only a fool wouldn’t want to avoid a tax mess altogether and here’s how you do it:
- From day one, you need to know exactly how much of the money in your business bank account is for tax.
- Avoid spending absolutely everything. That could mean making some nasty lifestyle changes but living on the tax money now will only bite you harder later.
- Try putting a percentage of each sale into a tax savings account. Percentages can be a bit hit and miss though. That’s why we make it really easy for our monthly-report clients by telling them exactly how much tax they should have sitting in the bank at the end of each month.
- Now for the clever stuff. When your tax savings build up, transfer chunks to your flexi-mortgage until it’s time to take the money back out to pay your tax bill. This generates free money but you’ll need our help to get it right. Tax Planning isn’t for do-it-yourselfers’. If you think it’s too pricey then talk to anyone who’s gone through the agony of getting it wrong and I bet they yell at you for being stupid, because Tax planning pays for itself.
If you’re currently in a tax mess and haven’t spoken to us already then get in touch because only last week we were involved in IRD negotiations that saved a client thousands of dollars.
“Paying tax is such fun” said no one ever.