Tax mistakes when starting a business

12753624Let me ask you this.  If you were forced to choose one which would it be?:

  • (A)  Your significant other confessing to an affair
  • (B)  Being told you need a major operation
  • (C)  Surprising your wife, husband or partner with an overdue tax bill of $150,000 plus an unknown amount of IRD penalties and interest. 

 

So what’s it to be?  Our research shows that most people will take an operation or philandering partner over a horrifying tax bill any day.  It’s a wise choice because the tax bill will probably ruin the marriage and cause heart failure anyway!  So it’s odd then, that not keeping track of tax is one of the most common mistakes made when starting a business.

Sticking with the tax flavour, here’s some other ugly mistakes to avoid when starting a business:

  1. Spending the tax money
  2. Thinking you don’t have to pay tax because the bank balance is empty
  3. Paying yourself a PAYE salary from your company
  4. Setting up your company with all the shares owned by your family Trust
  5. Taking risky tax advice from unqualified friends and family
  6. Throwing away Tax Invoices & not running a business-only bank account
  7. Making claims for personal expenses based on logic (instead of tax law)
  8. Not realising you have to pay Accident Compensation Levies on top of Tax
  9. Buying Accounting software without talking to your Chartered Accountant first or trying to run your business on excel spreadsheets
  10. Believing you have the skill to prepare your own Tax Accounts (and then incorrectly claiming a full deduction for things like ACC earner premium and fixed assets etc).

The cost of getting these things wrong can be deadly with the cumulative effect of IRD penalties & interest quickly turning a $5,000 tax bill into a $20,000 one.

You wouldn’t perform heart surgery on yourself … so why would you go it alone when it comes to tax planning?

 

 

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