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Sole trader tax tips for the new financial year

Our guide to good financial practices to take the stress out of taxes

According to our latest research, Kiwi sole traders spend an average of 6 hours a week and up to $246 a month managing their tax and financial admin. That’s 312 hours and $3,000 a year that could have been better spent elsewhere.

To help you avoid spending precious resources on admin this financial year, we’ve put together this guide on good financial practices that’ll take some of the stress out of taxes.

Whether you’re a tax veteran or just starting your self-employed journey, here are a few things you can do to save time and money each week, and make lodging tax as painless as possible.

Know what you need to set aside

As a sole trader, there’s a lot to think about when creating a financial budget for the year ahead. Not only do you have to calculate and pay your own tax, GST, ACC levies, and KiwiSaver contributions, you also have to pay yourself, meet your financial and business goals, and set aside enough for a rainy day. Phew!

Spending time now creating a budget could save you a huge headache down the line. To help you get started, we’ve put together a handy list of all the things you might need to plan for:

What you need to pay the IRD

Let’s start by dealing with the IRD. As a sole trader, you’re responsible for:

  • Income Tax - your income tax rate is calculated by adding up all your sources of income (including salary and wages, self-employed income, investment income etc) before applying a standard tax rate.
  • GST - If you earn over $60,000 per financial year from your self-employed income (i.e. not including any income from salary or wages) then you are required to register for GST.
  • Student Loan - If you have an outstanding student loan, and you earn over the annual threshold of $22,828, then you’re required to make repayments on that student loan.

What you need to pay the ACC

  • ACC levies - Alongside your other tax obligations, you’re responsible for calculating and paying the ACC’s three levies:
    • the Earner’s levy is a flat rate of $1.33 per $100 of your liable income
    • the Working Safer levy is a flat rate of $0.08 per $100 of your liable income
    • the Work levy is based on the industry you operate in. The riskier your line of work, the higher this levy will be

How to plan ahead

To avoid a colossal headache at the end of the year, the best time to start putting money aside for tax is now. Make sure you’ll be ready when the time comes in a few simple steps:

Step One: Use our Income Tax Calculator to calculate your tax rate, (approximate) ACC levies, student loan repayments, and KiwiSaver contributions

  • If you know exactly how much you’ll make this year, our Income Tax Calculator is a simple and accurate way to calculate the amount of money you’ll need to set aside.
  • If you DON’T know how much you’ll earn, our calculator is a good starting point. Plug in your previous year’s income, and go from there. As your projections for the year change, keep revisiting the calculator to make sure you’re still on track to meet your obligations.

Step Two: Get to grips with GST

  • If you earn over $60,000 in self-employment income per year, you’ll need to register for GST.
  • This means charging an extra 15% for your goods and/or services that you then pass on to the IRD. GST for your services is paid by your customers, not by you.

💡 You can reduce your GST bill by claiming back the GST your business has paid when purchasing goods and services. For more information, check out our guide to GST.

Step Three: Make the most of KiwiSaver contributions

  • If you make personal contributions to your KiwiSaver fund, you may be eligible for a government contribution of up to $521.43 annually
  • All you have to do is contribute $1042.86 between the 1st of July and 30th of June each year
  • That’s easy money being left on the table if you’re not taking advantage of it!

Looking for a way to automate tax calculations? Hnry calculates and pays your tax, GST, and ACC levies every time you get paid. See how it works.

While that’s a heck of a lot to be thinking about, our budgeting journey doesn’t stop there. Let’s look at what else you should be setting aside funds for: planned and unplanned time off work.

Time spent not earning

The best-laid plans of mice and men, right? Despite our best efforts to reach our business goals, life will sometimes get in the way. We need to make sure we have a rainy day fund to cover both the expected and the unexpected.

Get the ball rolling on this fund by calculating the total number of days a year you might not be able to work. For example:

  1. Public Holidays: Aotearoa celebrates 11 national public holidays, and one regional public holiday, for a total of 12 days off
  2. Personal Holidays: Are you taking a vacation this year (you absolutely should)? Do you need some time off to refresh and recharge? Give yourself some ‘annual leave’ and factor ‘paid’ time off into your budget!
  3. Sick Leave: PAYE employees get 10 sick days a year. Even if you don’t need it, knowing you have 10 days worth of income stashed away can make falling ill less stressful.
  4. Slow Periods: Many industries have slumps in activity at certain points in the year. If you know when yours are, you can compensate by putting more aside during busy periods.

If possible, it’s always best to err on the side of caution and factor in one or two days extra, just in case of emergencies.

The next step is to estimate how much money you need to set aside in order to cover these potential days off. This amount may vary by type of ‘leave’ – you might want to save more to spend for a vacation than during a sick day, for example – but at the very least, the amount you set aside should cover all your expenses for the time you take off.

📖 For more tips on planning leave, check out our guide to taking time off!

Setting money aside

If you have savings that will cover your tax and time-off funds, sweet! Our work here is done, and you can reward yourself with a nice cool/hot drink, depending on the weather.

But if you don’t yet have a fund in place, don’t worry. We can create one. All you need to do is set yourself a savings target based on how much you need, decide on a timeframe, and then put money aside each paycheck until you’ve reached your goal. How little or how much you put aside is entirely up to you.

Hnry makes this easy for sole traders by automatically assigning a percentage of their income to a savings account (or wherever they’d like to send it - investments, charities, friends and family, you name it). You can find out more about our automatic allocation feature here.

Get savvy with expenses

When you claim business expenses, you reduce your taxable income and thus your overall tax bill. But you have to be careful to only claim what you’re allowed to claim - otherwise, you risk playing the IRD lottery.

Find out what you can claim

As a general rule, you can claim a tax deduction for a business expense as long as:

  • the expense relates directly to earning income,
  • or running your business.

📖 For more information, check out our monster guide to business expenses for Kiwi sole traders!

Taking the time now to discover what you can claim as a business expense will set you up for the year ahead. As always, if you’re unsure about what you can claim as a business expense, always check with a tax specialist (or if you’re a Hnry customer, the friendly Hnry team!)

Save your receipts

There’s nothing worse than putting hours of blood, sweat, and tears into your financial admin, only to realise at the end of the financial year that you lost the receipts!

Keeping clear, organised records of purchases and goods/products sold will help make tax time as stress-free as possible. It’s also good practice; the IRD requires you to save a record of your expenses (receipts) for seven years after purchase, either physically or digitally.

Imagine seven years of receipts strewn across your office floor, and you’ll appreciate the value of a good filing system.

Alternatively, you can take a quick photo of your receipts and upload them to the Hnry app. We’ll calculate your expenses, claim your tax deductions for you, AND store your receipts for seven years from purchase. No shoebox full of records required – ever again.

Save time, money, and energy with Hnry

We may be biased, but we believe that the best way for sole traders to maximise their tax deductions (legally) is to use Hnry.

Hnry is an award-winning service that’s helping sole traders spend less time on financial admin, and more time doing what they love (unless what they love is financial admin).

Once you’re up and running with Hnry, we’ll automatically calculate and deduct your:

… every time you’re paid, so you won’t accidentally end up with a massive tax bill at the end of the financial year. We’ll even file your annual tax return for you, at no additional cost.

Raising expenses through our app is as simple as taking a photo of your receipt and inputting a few extra details. From there, our accountants will manage and claim your expenses, so you get the tax relief back in your pocket in real time (rather than having to wait until the end of the financial year). Easy as!

Get your tax ducks (and deductions) in a row by joining Hnry today!

DISCLAIMER: The information on our website is for general educational purposes only. It doesn't cover all situations and circumstances, and shouldn't be taken as direct tax advice. If you're looking for specific help with your taxes, join Hnry and our team of experts can provide you with assistance tailored to your business needs.

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