To reduce your taxable profit in the current financial year you could prepay some upcoming expenses for next year before or on the last day of this financial year.
Choosing expenses you will be paying in the coming months such as rent, consumable aids, insurance, maintenance contracts, rates, subscriptions, stationary , travel & accommodation, advertising , road user charges ………. .
Some of these expenses have a limit on the amount and/or the period prepaid. Whilst others are unlimited like rates that has no limit on the prepaid amount and period prepaid.
The expenses with set limits still are quite generous for a small or medium size business. For example you could prepay your rent up to the lessor $26,000 or 6 months in advance, your insurance up to the lessor of $12,000 or the next 12 months premium and advertising the lessor of $14,000 or the amount due for the next 6 months. If you were to take full advantage of the 3 prepaid expenses just outlined you would reduce the years tax bill by $14,560 and the following years provisional tax bill by $15,288 (assuming a tax rate of 28% and using the IRD standard method for calculating provisional tax). This strategy is deferring tax till future years.
Another suggestion would be to try and line up periodicals which you pay annually in advance so they are payable in the last month of your financial year.
For the IRD determination on prepayments and more specific details you can visit the link below or google IRD determination E12.
www.taxpolicy.ird.govt.nz – DET E12
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