End of Financial Year
Tidying up the previous financial year
It’s a busy time as the old financial year draws to a close and a new one dawns, so here’s a handy to-do list to ensure a smooth transition. A big thanks to the Head of Accounting at Xero, Grant Anderson, for some wonderful insights on this one!
1. Talk to me so we know what to ask your accountant before the year ends.
It pays to start thinking and planning about tax early. If you’re unsure about your particular circumstances, talk to me – I’ll be able to give you specific advice for your situation. Any fees you pay me are deductible too.
2. Stay on top of your record keeping.
Use cloud-based accounting software, such as Xero, to keep on top of your financial position. It’s scalable, cost-effective and so simple to use. ‘The cloud’ makes data and software accessible online anytime, anywhere, from any device.
You can share Xero with your accountant, and we can all work on Xero at the same time. This enables your accountant to help you resolve problems as soon as they happen, rather than leaving them until the end of the financial year.
Remember that expenses you want to claim need to be supported by invoices or receipts. Taking photos and scanning your financial papers throughout the year will save tons of time at the end and makes things easier for your accountant and bookkeeper. Don’t forget it’s a requirement to keep business financial records for seven years, so going paperless allows for easier storage unless you’re using Xero, where storing them in their system is acceptable for the IR.
3. Claiming expenses.
It’s important to know what expenses you can claim against your taxes and what you can’t. For instance, office supplies like printing and stationery costs are usually 100 percent claimable, but you can only claim a proportion of your home office costs. Always check with me.
If you use your car for business, you can claim some of the costs. If you think more than 25 percent of your travel is for business, you need to substantiate this with a logbook. If you travel less than 5000 km per year, you can claim mileage based on your actual travel. However you do need to keep a record of the distances travelled and the purpose of the trips. The IRD publish an approved mileage rate each year.
It’s also possible to claim for depreciation of assets. Purchases over $500 that have a useful life of more than one year must be capitalised, not expensed. The capital cost is then written off over the asset’s useful life. This is called depreciation. The IRD publishes a comprehensive list of the depreciation rates that apply to different assets.
4. Review fixed assets, inventory and receivables.
Take a fresh look at your list of fixed assets before balance date. Sell any surplus or unused assets that can be sold. Other surplus assets should be written off, along with any assets that have been thrown out or lost.
Review your inventory before balance date for out-of-date or obsolete items. Make sure to dispose of any unusable inventory before balance date. Any obsolete inventory can be written off to save you tax. Also, review your overdue receivables before the end of the financial year and write-off any bad debts.
5. Plan your expenditure.
To reduce your taxable income, purchase any upcoming expenses, like postage or printer ink, before 31 March in order to claim them as early as possible. Pre-payments such as insurance can be claimed in full, as long as the total amount prepaid is less than $12,000.