Business Accountants: Understanding Provisional Tax: A Guide to Spreading Your Tax Burden

 

While taxes may not be a favorite topic, provisional tax stands out as a method that eases the burden of tax payments. Unlike a hefty one-time payment at the end of the year, provisional tax allows for spreading tax liabilities across the financial year. Here’s what you need to know about provisional tax and how it works:


Key Components:


  • Provisional tax involves making regular payments to Inland Revenue (IR) throughout the year.
  • It covers income tax obligations for individuals, companies, and trusts.
  • Payment frequency depends on GST filing frequency, typically two or three times a year.

Understanding Provisional Tax:


  • IR calculates provisional tax as 105% of the previous year’s tax liability.
  • This estimate may not accurately reflect actual income fluctuations.
  • Final tax liabilities are reconciled upon filing the annual income tax return.
  • Adjustments are made if actual tax payable differs from provisional payments.

Options for Adjusting Provisional Tax:


  1. Voluntary Payments: Make additional payments to spread the tax load evenly.
  2. Estimation: Adjust provisional tax payments based on significant income changes.
  3. Ratio Method: Pay provisional tax based on actual sales, avoiding reliance on previous year’s income.
  4. Tax Pooling: Deposit funds with a tax intermediary to manage provisional tax obligations efficiently.

Provisional Tax in the First Year of Business:


  • While the first year in business isn’t tax-free, provisional tax obligations may not apply.
  • New businesses should plan for tax obligations and manage cash flow effectively.
  • Setting aside funds or using tax pooling can help alleviate the tax burden.

Ignoring provisional tax obligations can lead to penalties and interest, making it crucial to address tax liabilities promptly. Seek assistance from advisors if tax payments seem overwhelming or unmanageable.


Provisional tax offers a flexible approach to tax payments, allowing businesses to maintain financial stability while meeting their tax obligations effectively.


Your Outside Team

 

 

Need a bit of assistance with your business? Contact an Outside Accounting team member today and learn more about our fixed fees. You won’t regret it.

Aside from business consultation, we are business accountants Wellington who offer accountingbookkeeping, payroll services designed to help you achieve greater financial success.

You can click here to speak to a businessaccounting and bookkeeping firm. We will give you a call to know more about your needs. We will explain to you how we can improve your business. 

 

 

Contact 

Wellington Accountants | 

Business Accountants | 

Construction Accountants 

Property Accountants 

Contractor Accountants 

Hospitality Accountants |

Property Developer Accountants | Accountants Wellington | Wellington Accountant | Restaurant Accountants | Cafe Accountants | Business Consultation | Business Adviser

AddressLevel 2, 182 Vivian Street,
Te Aro, Wellington 6011, New Zealand 

Mail: PO Box 24-457, Wellington 6142

Phone04 889 2975

New Zealand Accounting, Bookkeeping & Property Business Consultancy Services | Wellington & Lower Hutt Xero Property Accountants Business coach business consultation business adviser

Business Accountants: Understanding Changes in Residential Property Taxation

Recent years have seen significant adjustments to the tax landscape, particularly concerning residential property. The government has responded to calls from various quarters to address investor demand in this sector. Notably, recent changes have been initiated to reverse tax policies affecting residential property, aligning with promises made by both National and ACT during their election campaigns.

Read More »

what is provisional tax
residual income tax
tax bill
accounting income method