I look back over the last 20 years and see that our clients are becoming more aware that, regardless of what type of business they are running, that being in a successful business is not just about selling a product or service and getting paid for it. Now it's essential that they have a business plan, develop the markets, test the products or services to meet the market expectations, then measure and plan for growth. Ultimately they need to plan to sell either because they see the business they built has a real value, or through succession. We now find the compliance aspect of our business, although still important is now becoming a by product of what clients are starting to demand.
A couple of true stories I thought worth sharing with you that happened over the last month.
DO IT YOURSELF TAX IS DANGEROUS AND COSTLY, I had a meeting with a woman that prepared her sons tax return he’s a country Doctor, a high income earner, she complained to me that the son’s provisional tax had skyrocketed last year and that it had attracted penalties imposed by the IRD, for short payment. I looked at her worksheets and realised that she had picked up the incorrect figures overstating her son's income by $50K.
She had been concerned about the high level of tax to pay for some months, she admitted to me that it all got too much for her that's why she came and saw me.
One thing to be aware of is if your business hasn't miraculously improved from the previous year there is no reason why your tax should suddenly skyrocket.
In the final analysis, it's not worth getting a family member to do your tax to save some dollars, having them worry whether they’ve done it right, then getting a professional to put it right. DO IT RIGHT THE FIRST TIME.
A couple came to me happy in the knowledge that they had purchased their first rental property and had put it into a LTC (Look Through Company) the LTC allowed them to isolate the losses to the husband, who was the main income earner. Because the property was cash flow negative that is to say the expenses are greater than the income, you may ask why would anyone buy a rental property if they are going to lose money. Well firstly, if the expenses are greater than the income then it makes a loss, the loss is then matched against the husband's income resulting in a tax refund for him which helps pay for the rental expenses. Secondly, we all know that eventually houses go up in value (hopefully) this is known as a capital gain and is not taxable.
The poor couple however, thought it would be a good idea to rent the property to a family member and because it's family they allow them to pay below-market rent, Wrong because the IRD frown upon taxpayers who have family members in LTCs that they treat as a business and disallow any deductions claimed. If they came and had a chat with us first this wouldn't have happened
Have a safe and Merry Christmas, look forward to sharing some news in 2015.
By Dennis O’Grady
Posted on Mon, 1 December 2014
by Dennis O'Grady