COVID-19 has impacted most New Zealand businesses, which means that tax planning is more important than ever this year.
Take a look at some of our favourite strategies for SMEs to use to reduce their tax bills this financial year.
1. You can deduct your prepaid expenses
Small businesses that make less than $10 million a year can claim immediate deductions for various expenses, including prepaid bills that are paid before 30 June 2020. These include lease and mortgage payments, rent, business travel, insurances including your business insurance and assorted business subscriptions.
2. Review fixed costs
The period before the new financial year is a great time to do yearly forecasting for your business. Fixed costs are an easy way to save money for your business because you can identify these ongoing expenses and then actively seek to reduce the cost. You can visit to save money on your business insurance. BizCover offers multiple quotes from NZ’s leading insurers. You can compare and buy your insurance online, and there’s no hassle, no paperwork and no delay.
3. Get rid of your obsolete equipment
Some items simply can’t be used anymore. This can include plant, equipment, or dated technologies. If you have obsolete equipment lying around, you should write it off. You can claim this as a tax deduction
4. Write-off bad debts
You might include non-cash income as part of your business’s asses sable income. However, you may not have had success collecting all of your receivable accounts.
However your business will need to demonstrate that it has made a genuine attempt to recover the debt by 30 June in order to prove that the debt is irrecoverable and therefore bad. It’s best to have your attempts to collect your bad debt taken down in writing.
5. Claim concessional superannuation contributions
Generally the maximum amount for concessional super contribution is $25,000. This applies to both concessional, personal, and concessional employer contributions made on behalf of the individual.
To make sure that you can ensure a deduction for the 2020 financial year, deposits have to be received by the relevant super funds before the end of financial year.
6. Defer your income and capital gains tax
If your business brings in cash income, your income is assessed on an ongoing basis. To reduce this year’s tax bill you can simply delay the “receipt” of your income until after the end of financial year.
7. Write-off hard-to-move stock
You can value your stock using three different methods; taking the items actual cost, its replacement value or its market selling value. You can value every separate item in your business sing the method that will ascribe them the lowest value.
This is a great way to easily generate a tax deduction. Just value your items using the smallest estimate for tax purposes to get a tax reduction.
10. Claim deductions for expenses not paid at year end
You can actually claim a tax deduction for any expenses that your business has incurred but not yet paid. These include:
Salary and wages — You can claim a tax deduction for days that your employees have worked but not yet received pay for prior to end of financial year.
Staff bonuses and commissions — This one may not be as relevant this year in light of the financial turmoil brought by the COVID-19 crisis. However small businesses can claim tax deductions on bonuses and staff commissions that they are committed to paying but have not already paid.
Repairs and maintenance — A deduction can be claimed for repairs undertaken and billed by 30 June 2020 but not paid until the next income year.