David Greenfield CA discusses end of year accounts
As small businesses we probably all dread the end of year accounts, but there are ways we can make it less painful:
Before and on end of year:
1) Write off bad debts so they are deductible for tax (you can still chase debts, but you need to write them off on or prior to year-end).
2) Low Value Assets. Assets for your business can be deducted 100% where the value is $5,000 from 17/03/2020 until 17/03/2021. (If you need to buy a business asset consider doing it before 17/03/2021).
3) Stock. You’ll need a value of your stock on hand as at 31/03/2021 valued normally at cost price or sales value if less than cost.
a. You need to count your physical stock.
b. Ensure the stock you count has been paid for or is in your creditors system as at 31/03/2021.
c. Ensure stock that you have not counted but has been paid for or is in your creditors system on or before 31/03/2021 is included in your stock take.
4) Work in progress. Best invoiced and cleared down to minimum level if possible. If material, a valuation of your work in progress as at 31/03/2021 is also needed.
After year end for your tax advisor:
Your tax advisor wants to verify all your assets and liabilities that way the balance should be your profit. It’s to your benefit to verify your info is not missing anything.
Your tax advisor will need
1) Copies of bank statements as at 31/03/2021 showing balances and a bank reconciliation if there are differences
2) Ditto company credit cards
3) Loans relating to your business are important
a. Verification of loan amount balance as at 31/03/2021
b. Transactions showing interest and principal paid is important
c. Interest rate, term of loan and security helps
4) Details of fixed assets
a. Purchased during the tax year
b. Sold during the tax year
c Disposed off/no longer used during the year. (check against previous year’s list)
5) Accounts receivable and Accounts payable. (if not using MYOB or Xero products using these features) You’ll need to let your tax advisor know of any invoices charged and not paid at end of year and any invoices payable
6) Private use of assets. If you use business assets partly for busines and partly privately, an adjustment to expenses and GST is required. You need to identify these assets and let your advisor know the % of private use and how calculated.
Some expenses are also specifically reviewed and often need adjustment:
1) ACC invoices. A copy to your tax advisor as the earners levy portion is non deductible and will require a GST adjustment.
2) Entertainment needs adjustment for deductibility and GST as generally only 50% is deductible.
3) Legal fees are not always deductible, if over $10,000 provide invoice copies to your tax advisor.
4) Home office. Working from home allows you to claim a portion of home expenses as office expenses. You tax advisor can provide you a list of typical deductions.
5) Tax advisors normally reconcile wage and salary expenses to your payroll system and IRD. Let your advisor know anything that has not gone via the payroll or IRD.
Talk to your tax advisor and check if they have any other specific requirements.
The final warning is a note on motor vehicles used in the business.
If a company, you can fall under the FBT regime where if a vehicle is available for private use the company is liable for FBT. If is not available have a letter from the company saying so. Travel to and from home and a work office is private use.
Maintain records to check the vehicle was not used privately and if the car is owned privately have a 3-month logbook showing private and business use and make sure the info is not older than 3 years.
Don’t stick your head in the sand; get into the habit of keeping good records.
Disclaimer: The information provided is general information and does not constitute specific tax advice. Please talk to your tax advisor on specifics.