Starting out as a Contractor - Tax and GST Advice Needed

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  kiwical on 15/08/2024 - 07:38

  I've always used an accountant. Don't forget it's their job to make sure you are paying the least tax as you can so they could find things you weren't aware of. All worth it for piece of mind if you ask me.

  Price has crept up over the years as my accountant got larger, employed more staff etc. Generally I pay $600 every 6 months for GST and $2500 for End of Year, so total $3,700 per year. I've often thought about changing due to cost but the thought of starting all over again and teaching a new accountant how my business works puts me off. So if you do go down the accountant route I'd choose one that seems really good from the start. Because you might be in with them for a long time. Unlike your internet provider or whatever it can be a mission to change to another one.

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    NovaAlpha on 15/08/2024 - 16:42

    I've never used an accountant before. How come the end of year they're charging you more than 4x the usual? What's different at the end of the year compared to the previous 6 months?

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      kiwical on 16/08/2024 - 09:29

      End of year takes more time as they need to calculate any home office deductions, any vehicle logbooks, work out depreciation of stock and assets, compile interest / dividends and other income, Working for families, any rents paid or received etc etc etc. Then prepare a report for the year. GST is less complex.

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        NovaAlpha on 16/08/2024 - 10:34

        Couldn't they just create some sort of spreadsheet or whatever and just chuck data in? Sounds like this could be automated.

        For personal expense tracking and budgeting, I use this app called Wallet from BudgetBackers. I can create rules and tag transactions, which will always return the same detail. E.g. if I went to top up fuel at BP Botany, it will always show BP Botany on the transaction notes. I take those info and tag them, so they're labelled as Fuel and is under a specific category. Future transactions coming from this place will be tagged automatically, then I get to see where all my expenses went. It comes with a bunch of really nice reports and graphs and charts. I'm sort of simplifying this a bit but once the initial hard work is done, the rest is pretty much smooth sailing. Also, I don't have to manually upload data to it. It can link to multiple banks with Read-Only access and I've been using this for over 5 years at this point without any issues. Lifetime use for only $20, worth it in my opinion. I would never have bothered to do any manual input, or manually upload data or take photos of receipts, etc. Screw that.

        I'd imagine that there would be services or software out there that do a similar thing for accounting? Spending $3000 on accountant a year just seems like throwing money down the drain. But then again I've never really used one so I wouldn't know.

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  icecold on 15/08/2024 - 14:06

  +1

  I use Hnry for the simplicity sake of it.
  Easy to use interface, never had tax issues come end of year either.
  hnrys support team is good if you don't know what can be claimed they can guide you.

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  sunshinenz on 15/08/2024 - 19:11

  +1

  You should start with an accountant. If your business is simple you can learn from reading the accounts they prepare for you, then you can take care of your tax stuff later. Remember that the accountant fee is tax deductible.

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    boovohh on 15/08/2024 - 20:08

    Its a very simple gig. Starting as a project lead for a company. im thinking of going accountant route too. vwry confused rn

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  Elvino on 16/08/2024 - 10:39

  I have done this exact thing recently.
  In my case, (and following some advice from a colleague), setup a company through which my wife and I were the directors. Setup all the standard ACC and GST items as you have done, and decided that given it was my first go at contracting, to go for an accountant.
  You do pay a bit more for it, but honestly the value that a good accountant can provide in advice and guidance is totally worth it.
  Add to this the fact that the annual accountancy fees are deductible anyway, it made sense for us.
  My annual fees for the accountant was around $1600-$1800, and I ran this way for about 3-4 years. I looked at doing tax myself, but in all honesty, the simplicity and confidence you have with getting an expert to do it, coupled with the $$ they ended up saving me annually, was worth it 100% in my situation.
  Feel free to ping me if you have any questions.

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    boovohh on 17/08/2024 - 01:32

    Hi, thanks for this.
    I spoke to hnry and my mate who is an accountant and currently leaning towards getting an accountant for the first year
    But in my research today, I found Solo. https://www.soloapp.nz/
    It seems to be pretty good. The app is $300 a year, does all the break down of taxes, gst, acc etc, and then expense claim tax deductions. They dont do GST filing or tax filing but have a very good guide on how to do it. Essentially they prepare everything and you just gotta copy paste to the IRD forms. I was thinking of taking this and then probably getting an accountant for a one off tax returns if needed at the end of year.
    Not really leaning towards Hnry, it just seems very off to me. my other mate is using beany which is close to hnry and isnt really happy with it
    What do you think?

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      Elvino on 19/08/2024 - 09:53

      +1

      Im sure the apps are all accurate to the nz legislation, and they will provide you with the tools to ensure you meet all the IRD requirements.
      I have not used them myself, as again, I chose the accountant route.
      Your own value proposition on this topic will be the key here. If you're focussed on doing it for the cheapest possible, then of course a Hnry/solo route will work, but you lose the opportunity cost of getting tax advice and potentially maximising your income through the knowledge of the legislation that accountants have - coupled with the headache of making sense of it all in the first year. Good luck

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  jrobnz on 20/08/2024 - 11:36

  hey mate, I use kiwitax. Let me know if you need a referral

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  quasar on 21/08/2024 - 23:04

  I was a contractor for about 10 years and I remember the main thing that I was told when I first started out - tax in your second year is going to hurt. You'll be paying the income tax for your first year combined with provisional tax for the second year in 3 instalments, so make sure you put away money for this (I found an offset mortgage to be a good way of doing this). I stopped contracting about 7 years ago so I'm not sure if any of this has changed.

  I had an accountant as I didn't want the added stress of trying to deal with that side of things and found them worth the money. One advantage of having an accountant not yet mentioned is you can file your tax return later.

  Depending on what you're doing and what your acceptable risk is you also might want to think about personal indemnity insurance.