Getting Tax Right in Your First Year of Business

  1. Home
  2. /
  3. Taxation
  4. /
  5. Getting Tax Right in Your First Year of Business

Benjamin Franklin said that ‘in this world, nothing is certain except death and taxes’. But do you have to pay tax in your first year of business? Continue reading to find out.

What income is taxable?

For a sole trader or partnership, you pay income tax on your net profits. Net profits are the income the business makes after deducting allowable expenses and before any drawings. In a partnership, the net profit is shared between the partners. It is also included in their personal income tax returns.

For a limited liability company, you must pay tax on profits. Profits are the gross takings less all the business expenses (including your salary).

Early payment income discounts

You can choose to make voluntary payments of tax during your first year of business to help spread the cost. You may be eligible for an early payment discount of 6.7%.

People who can get the early payment income discount:

  • are self-employed or a partner in a partnership
  • have started a new business
  • get most of your income from the business
  • make a voluntary income tax payment before the end of the income year
  • elect to receive the discount before the income year’s tax return is due
  • do not have to pay provisional tax in the income year, or in the past 4 years
  • have not received an early payment discount, any self-employed income, or any partnership income in the past 4 years.

Spreading it out with provisional tax

Provisional tax helps you manage your income tax. You pay it in instalments during the year instead of a lump sum at the end of the year.

You will have to pay provisional tax if you had to pay more than $5,000 tax at the end of the year from your last return. The threshold was $2,500 prior to 2020.

Planning ahead and completing your tax return on time

We recommend putting money aside for tax in your first year of business. This will help with cash flow in the following year.

If you have a March balance date, any tax you have to pay is due the following year by 7 February. The benefit of working with Ean Brown Partners is you get an extension to pay this until 7 April.

Payments can be made electronically and online by credit or debit card. Inland Revenue is no longer accepting cheques as a payment option.

How we can help

Tax can be a major cost to your business. Our experienced advisers can help minimise your tax liabilities and ensure you achieve your goals.

Just some of the tax services we provide include:

  1. Preparation of company, trust, partnership, estate and individual income tax returns
  2. Managing your tax assessments and payments
  3. Spreading any large tax payments through use of intermediaries such as Tax Traders
  4. GST/Fringe Benefit Tax/ACC obligations
  5. Regular income tax planning

Start Your Relationship With IRD right

Share This

Leave a Reply

Your email address will not be published. Required fields are marked *

Fill out this field
Fill out this field
Please enter a valid email address.

Related Posts