Sunday, July 18, 2010
Accounts.. It's Not So Bad!
When I started out and wanted to know what my tax obligations were, I couldn't find any anecdotal advice or links out there to learn from so I thought I'd share my 1st business tax return experience with you all in the hope I can shed a little light for people in the same position I was!
Step one - ask someone who knows - in my case it was my boss (a management accountant) who pointed me in the right direction on the IRD website (refer to the IR320 document) and sourced examples of hobby vs business tax cases etc so I could make an informed decision re where I sat. In short, if you are selling wares/services with the aim to making a profit - regardless of whether you are actually making a profit or not - you are in business and therefore required to complete a tax return. Bear in mind - there is NO minimum earnings level. The IRD puts it like this...
"How do I know if I’m in business?
In general, you’re in business when:
• you start charging others for the goods or services you produce
• you supply these goods or services on a regular basis
• you intend to make a profit from selling your goods or services."
Yep, I've started selling on-line and at craft fairs, yep, I would like to cover my costs so I can make more. Ok, so I'm in business... yikes!
Step two - know your limits - do you have the experience to do your own accounts or could you benefit from some advice. Often it's worth contacting the professionals to start you off. IRD have business consultants you can go and see and of course there are independant accountants. I know book-keeping so was happy to do my own record keeping/summarising and then contacted an accountant we knew for his help to fill in my tax return.
There are a couple of benefits to getting professional advice - 1. once you become a client of a tax agent you get their invaluable advice on claiming for things you would never think of but are entitled to, 2. You get your tax agent's tax return date extension. 3. You can claim back their charge as a business expense.
Step three - contact IRD and let them know you will need an IR3 form, and if you are also a wage/salary earner - request an earnings summary.
Step five - It's your tax year end (probably 30 March), wait till all your bank statements etc have been received then send the whole year's information (including your IR3, and earnings summary ) to your accountant (or fill in your return yourself). Remember you can claim for home office expenses - work out the percentage of your workspace in relation to your house - eg 10%. You can claim this percentage for power, rates, mortgage interest, house and contents insurance, etc. You can claim vehicle expenses (if you've kept a record of business mileage), phone, broadband, depreciation on computer hardware. The list goes on.
That's really all there is to it. Please keep in mind, I am not a tax/accounts professional, and this is purely my own experience and research... good luck, and remember, once you've got a good system in place, it's easy to maintain... honestly... it is!