Tax doesn’t mean taxing your brain

The “unprecedented” tax year is coming to an end. Many businesses are operating in a manner that would be unthinkable 18 months ago. Costs are scrutinised more closely. Tax incentives were established. Additional financial support became available.

It’s time to take a breather. It’s time to reduce your 2021 tax bill. It’s time to consider positive changes going forward.

Ideas for reducing your tax bill

1. New Healthy Home Standards start from 1 July 2021, and there’s fantastic motivation for landlords to spend money bringing rental properties up to (exceed) compliance requirements.

Business assets purchased for less than $5,000 before 17 March 2021 can be immediately claimed as an expense for tax purposes. This includes items such as heating units, extractor fans and range hoods.

The tax incentive applies to all business owners, so if you’re considering upgrading your mobile devices, installing a security system, buying a car, refurbishing the office, or anything in between, take advantage of the government’s generosity and purchase before 17 March!

All things must come to an end - after this date, the threshold reduces to $1,000.

100% deductions

If you purchase any asset for less than $5,000 before 16 March 2021, it can be fully claimed against your income for the year ended 31 March 2021. Assets can include your desk chair, table and the computer you use for work.

From 17 March 2021, the deductibility limit reduces to $1,000.

You can also claim 100% of maintenance costs relating directly to your home office area, such as new carpet - the $5,000 or $1,000 thresholds don’t apply.

Partial deductions

You can probably also claim a portion of your rent/mortgage interest, electricity, rates, and insurance, along with your telecommunication bills - landline, mobile and internet charges. The amount you can claim depends on the floor area used for business. So if your ‘home office’ is 20 square metres and your home is 200 square metres, then you can claim 10% of your expenses.

2. Runner up for best government tax incentive is taking a tax loss from the 2020 or 2021 year (not both) back to the previous tax year. Let’s say you had taxable income in 2020 and paid tax. A loss made in 2021 can be carried back to offset your 2020 income. This notional reduction in 2020 taxable income means that you’ve overpaid tax and it will be refunded.

3. Run through your receivables listing and overdue invoices. If you’re unlikely to be paid, write off the bad debt before 31 March. If you’re not sure how to do this, provide your accountant with the customer and invoice(s) and they can do it for you. Writing off bad debts means you’re not paying tax on income you don’t expect to receive.

4. Print out a list of business assets or ask your accountant to provide this information. You’re bound to discover items that have long since been scrapped, given away, or are too damaged to be used. These assets can be written off, reducing your taxable income and your tax bill. Unlike bad debts, this doesn’t need to be done prior to 31 March.

5. “Bright-line” on residential properties has been with us for a few years now.

This capital gains tax in disguise has subtle intricacies and has caught a lot of people out. Before buying or selling a residential property (even your own home), you need professional advice.

Don’t rely on what your mate says, or what you read in an online article – the financial consequences can be disastrous. There’s no going back once title has changed.

Positive changes for 2021!

1. Increasing sales is one way of improving profit – the other way is to reduce expenses. Run a Profit and Loss account from your accounting system and take an hour or two to investigate expense lines, such as:

a. Subscriptions – do you use all of them? Are there some you can live without?

b. Advertising – are you getting a good return for your buck? These days, newspapers, brochures, and other print media are becoming obsolete.

c. Bank fees can add up – if you don’t use all of your bank accounts, consider closing one or two down.

d. Interest expense – going into overdraft can result in large penalties and incur a high-interest rate. Would a (revolving) loan facility be better?

2. Accountancy fees – does the cost of your accountant include meetings that you don’t need? If you’re paying for unwanted face-to-face time, ask your accountant for a different package or consider using one that’s 100% cloud-based with no meetings (and no overheads).

At Beany, we have an accounting service package which is perfect for real estate agents! We also have a special deal for all REINZ members.

Other Beany accounting packages can be found at beany.com/pricing. We’d love to discuss the most appropriate option for you, so just get in touch.

3. Using an accounting software package that does what you need is vital to businesses. The start of a new year is the perfect time to switch to Xero (or other accounting software). We’ve found Xero to be ideal for small to medium-sized businesses. It’s user-friendly and has a great online support website with stepby-step guides and short, manageable tutorials (usually between two and five minutes) to follow.

A variety of pricing plans are available directly from Xero. There is also the Xero CashBook plan (only available through accountants), which is ideal if you don’t need all the bells and whistles - great for real estate agents!

4. Non-accounting software can automate and integrate many processes with ease. Your existing software may have functions you didn’t know existed. Perhaps your apps could be integrated with each other, your bank account, and/or your accounting system. Customise your current systems and research others that could streamline the way you work.

a. Hubdoc is free to Xero subscribers – it captures receipt data and records the transaction in Xero

b. A list of property and realty apps and commissionaires that can be integrated with Xero can be found at apps.xero. com/nz/industry/property-realty

c. The softwareconnect.com website provides reviews of real estate accounting software

5. Are you on track to pay the annual amount of $1,042 into KiwiSaver before 30 June? The government will contribute up to $521 each year – an investment return of 50%! Check out sorted.org.nz for more information.

Susannah De Bievre, CEO, Beany

If you’re unsure about implementing any of these tips or want to talk them through with someone, contact us at support@beany.com. Sue is a qualified Chartered Accountant. Not only has she worked in well regarded professional accountancy practices over many years, she has in addition, owned small businesses of her own. This gives Sue great insight into just how demanding, and rewarding, small business ownership can be. Beany.com.