Common myths can be a trap for business newcomers
Running a business can be challenging, and dealing with taxes can add to the complexity.
Here are some common myths that often confuse new entrepreneurs.
Myth #1: Taking less out means less tax
While the money you take out is considered income, it’s not your taxable income. Taxes are based on your business profit, which is your sales minus your expenses.
Myth #2: Higher expenses equal lower taxes
It might seem like spending more reduces your tax bill, but Inland Revenue has specific rules about what counts as a deductible expense.
Advance purchases: Buying lots of stock isn’t an immediate expense. Inland Revenue sees it as an asset (money in a different form) until you sell it. The value of unsold stock reduces your claimable stock expense.
Car depreciation: Cars are considered to have a multi-year lifespan, so the expense is spread out over time through depreciation, not all at once in the year of purchase.
Myth #3: You have to borrow personally for business loans secured by your home
While banks often prefer using homes as loan security, they can still lend directly to your company. The interest rate might be higher for a company loan, but the interest is tax-deductible.
If you borrow personally but the money is for your company, you can still claim a deduction for the interest. However, this requires legal documentation and extra administration. It’s best to consult with us before borrowing in your own name for business purposes.
