Photographers! The three tax tips you need in your life
1). One bank account for all your day-to-day business transactions. One account for GST and one for income tax
Make your life easy by having all your sales and purchases go through one account. If you’re a sole trader, open a cheque account in online banking and name it “day-to-day.”
If you have a company, do the same with the first account you opened, or create a new one.
Having one account for all of these transactions makes financial admin so much easier. Now, you won’t need to look all over the place to find that payment your client has said they’ve made. If you’ve got Xero setup properly, the AI will pick the payment up and allocate it automatically to the relevant invoice. Boom, one less step you have to worry about.
One account also ensures your accountant is picking up on every expense they need to. The default position then for the accountant is that expenses flowing through here should be tax-deductible, they’re all business related. Boom, tax savings in the bag.
Next, ensure you have two other bank accounts; one for GST, and one for income tax. Then, on a monthly basis (or however frequently you wish), shift 15% of your net earnings to the GST account. Then, take 20% (30% if earning over $80k) of the remainder and put it in the income tax account. Don’t touch the money in these accounts! They will save you when it comes to GST and tax time. I did a video on this on my Instagram which you can check out here (see point 3 of the video).
The rest is what you can take as your earnings. Put this into your spending account or against the mortgage.
You can also do this on any frequency you prefer; weekly, fortnightly, daily if you’re crazy. The easiest is to try and tie it in with when you pay yourself.
BUT, If you want an even easier option, check out point 3 below where I explain how you can get onto a PAYE salary, just like you had at your old job, and never worry about provisional and end of year taxes!
2). Make sure all your equipment is on the fixed assets register, and any purchases are flowing through your ‘main,’ everyday, business bank account
Camera equipment has a depreciation rate of 50%. That means, if you buy a $5,000 camera, in the first year you’ll get a tax deduction of $2,500, which at 30% is a tax saving in your pocket of $750. Yes, you will pay $750 less in tax because the purchase was correctly recorded in your financial statements.
If you utilise one bank account as suggested in step one, this one will be easy. Your accountant will pick up on the purchase and add it to the fixed asset register.
3). Instead of drawings, go onto PAYE salaries and then you won’t have to worry about provisional tax or terminal tax bills
Hate provisional tax and surprise tax bills? I got you covered!
With payroll software such as iPayroll or Xero payroll, with a few really easy clicks you can be on a PAYE salary and never have to think about provisional tax or end of year tax surprises again.
How can this be done?
If you take $2,000/week in drawings for instance, after setting aside $1,000 for tax ($3,000 gross earnings), then in the payroll software, you declare gross earnings of $3,000 and the software will tell you the PAYE on that income.
The PAYE will be due the following month (usually the 20th). So, set the weekly PAYE tax aside in a separate bank account so there are no issues when you come to pay the PAYE to IRD the following month.
I’d also recommend if you have a company, that you check you are paying yourself the full profit of the company. If so, in the above example, the company would be making $3,000 per week in net profit (revenue minus all expenses). If you’re not doing so, make sure you are leaving the profit that you aren’t paying yourself in the company bank account. If you don’t, you run the risk of running into tax issues at year end.
And to summarise, here’s how to get onto PAYE in three easy steps:
Sign up to an online payroll provider; iPayroll and Xero payroll are both great options.
Work out your weekly, fortnightly, or monthly net profit you would like to pay yourself and enter that figure into your payroll providers software.
The payroll software will calculate your PAYE. Pay yourself the net amount, and set aside the PAYE to pay over to the IRD the following month.
Stop worrying about provisional and end of year tax bills!