How to Save Tax - My Top 10 Practical Tips

The question of “how to save tax” is frequently discussed by many people. Often, when you ask someone, they might say “just Google it” and while you'll find various suggestions online, here are my personal top 10 strategies to help you save tax effectively:

1. Review Your Accounts Receivable

Look closely at your debtors. If there are items you're unlikely to recover, they should be written off appropriately.
Important: Income tax is calculated on an accrual basis, meaning that even if you don’t collect the money, the income is still taxable unless written off correctly. Monitor overdue receivables carefully.

2. Assess Your Stock (Inventory)

Stock valuation directly affects your taxable profit.
Formula to remember: Opening Stock + Purchases – Closing Stock = Cost of Sales
If your stock is overstated or understated, your tax calculation will be incorrect. Ensure your closing stock is properly valued.

3. Include Accrued Expenses

Since income is taxed on an accrual basis, expenses should also be accounted for on the same basis.
Review all payments made after year-end and determine if they relate to the prior financial year. If so, they should be accrued as expenses for that year.

4. Holiday Pay Accrual (NZ Specific)

In New Zealand, holiday pay can be accrued for tax purposes.
However, if the accrued holiday pay is not paid within 63 days of year-end, it must be added back to income.
Ensure any holiday pay that has been paid within 63 days is properly claimed as a deductible expense.

5. Include Business-Related Personal Expenses

Have you missed any expenses that were paid personally on behalf of your business?
It’s common to overlook small purchases, like a phone or equipment, paid from personal funds. These are still legitimate business expenses and should be recorded accordingly.

6. Claim Entertainment Expenses

Are you claiming your entertainment expenses?
Remember, under most tax regimes (including New Zealand), only 50% of entertainment expenses are deductible.
Still, 50% is better than nothing, don’t miss out on claiming what you’re entitled to.

7. Review Asset Depreciation

Ensure all eligible business assets have been capitalised and depreciated correctly.
Assets such as laptops, tools, office furniture, or vehicles should be included in your depreciation schedule.
Missing assets = missed deductions.
Also, consider writing off obsolete or scrapped assets that no longer provide economic benefit.

8. Home Office Claim

If you work from home, you may be entitled to claim a home office expense deduction.
This includes a portion of rent, mortgage interest, power, internet, and repairs — based on the business-use area.
Use the square metre rate or actual cost method (whichever gives the better outcome).

9. Prepaid Expenses

Certain expenses paid in advance can be claimed in the current year. For example, subscriptions, insurance, and stationery.
These are known as "prepaid expenses" and can help reduce your current year’s taxable income, subject to specific thresholds and rules.

10. Use a Look-Through Company (LTC) or Trust Structure Wisely

If you’re running a business or holding investment properties, consider whether your current structure is the most tax-efficient.

An LTC or trust structure may provide flexibility for income allocation, asset protection, and potential tax savings through:

• Allocating income to lower-taxed beneficiaries or shareholders

• Retaining profits at trustee rates where appropriate

• Managing provisional tax obligations more effectively

Important: The right structure depends on your personal and business circumstances, so always seek professional advice before making changes.