How to win with income tax
It’s a sad fact that tax is a big part of being in business. Not only do you have to pay over a large chunk of your money to the IRD in various taxes, but like it or not, you also have to act as tax collector, as well as working unpaid for other Government agencies, whether it’s collecting court fines or child support.
Unfortunately some businesses owners and self-employed people never seem to be able to cope or get to grips with income tax, and it just becomes an insurmountable, frightening problem that leads to financial ruin for many.
If you want to succeed in business the first key to success is acceptance. Do whatever you need to do — go and lie down, have a triple-shot coffee, or relax with a glass or two of your favourite glass of wine and let it embrace you. It’s just inevitable — you cannot run a successful business without suffering income tax, and that’s that!
Plan for it
Having accepted you need to pay, the next thing to do is to plan for income tax. Find out when you have to pay and how much. That means getting a good accountant and having your accounts and tax returns prepared early. Ask the accountant to let you know about future tax instalments. Knowing what you have to pay and when is absolutely vital so you can either allocate some money or start saving for the inevitable.
Don’t sit back and do nothing
Many seem to think that if you ignore income tax it will just go away and that you can spend your money on more important personal things. If only, but no. That just means the amount you owe grows and grows as each instalment date passes by and the IRD pile on interest and penalties by the bucketload. It’s nigh on impossible to pay current taxes as well as tax arrears, so avoid this situation at all cost!
Of course, in business there are many uncertainties, and despite best intentions there will inevitably be times when many business owners can’t pay their income tax. Here are a few things you can do until your situation improves:
It’s normally very straightforward to make an arrangement with the IRD, as this can be done over the telephone. Yes, they still do charge you interest, but at 8.4 % it’s not bad and they let you off the nasty penalties. You can have up to two years to pay the debt, which is pretty generous after all.
Remission of tax debt
In certain circumstances it’s possible to get the IRD to write off all your income tax debt. For example, I recently managed to get $95,000 worth of income tax debt written off for a client. Unfair in many ways, I know, to those of us who pay their taxes, but nonetheless effective!
Another effective way of paying taxes late, tax pooling can be used to pay Provisional Tax late or Terminal Tax up to 60 days of the Terminal Tax due date. It’s very useful because firstly, the interest rate charged is about 2% less than that charged by the IRD, and secondly, it removes any possibility of penalties because it’s treated as being paid on the original dates it was due.
The concept of “winning” may seem strange in the context of income tax, but it’s a huge worry when you’re in business so face it head on!