It Can Pay To Count On An Accountant

Some people were born to crunch numbers, others get sweaty palms at the thought.

There are arguments for and against doing your own taxes.

For anyone with the remotest amount of complexity to their tax position, trying to cut corners on tax preparation isn’t always a good idea. It’s often what you don’t know that is the problem.

Investment property-owning clients:

Can you name the three-step test to determine if a fit-out item is depreciable?
Do you understand the deductibility issues associates with a break penalty in mortgage?
Many don’t know the answers.

Kiwis who have worked overseas can have financial lives that straddle two or more countries. Their tax position may be complex if they have left behind foreign superannuation/pensions, large cash deposits, investments, or mortgaged property.

They may be hit for an unexpected tax bill as a result of foreign exchange swings resulting in “capital gains” on their foreign holdings. An Accountant can deal with this type of issue by recommending clients use tax pooling (factoring). This is a service that allows taxpayers to reduce the impact of money interest costs.

Being an intermediary between the client and the IRD is a very important role for an Accountant.

While Accountants can’t make guarantees to clients facing audits, they can negotiate arrangements with the taxman that might reduce penalites and interest. This is particularly the case where it can be shown that the taxpayer had no malicious intent.

It’s difficult for the layperson to keep abreast of complex and constantly changing laws.

Hidden costs of Tax-Return Agencies:

Plenty of Kiwis opt for getting refunds via tax return agencies of the type that have popped up in shopping malls. These companies offer tax refunds on a ‘no refund, no fee’ basis, but take a large chunk of whatever they recover.

Ironically, these agencies specialise in only the simplist of returns for PAYE earnings only. Anyone with half a brain could do it themselves at www.ird.govt.nz. The process involves getting a ‘Summary Of Earnings’ and then a ‘Personal Tax Summary’ calculation, both of which only take a few minutes if you’re armed with the same information that the tax agencies will ask for.

As one poster on the www.GPForums.co.nz website said: “The effort put into being with a stupid agency that takes a cut is the same effort to sign up on the IRD site that takes no cut.”

One of the problems with using a tax refund agency is that they make clients sign an agreement so that they become your tax agent.

Sometimes the people who use them get themselves in a pickle because the agency only deals with their personal tax return.

Accountancy firm HWI warned its clients about these agencies after it saw a number of instances of children over the age of 16 who are beneficiaries of Trusts visiting tax agencies in malls without realising that their actions affected the Trust tax. That means that they needed reassessments, which cost money.

“Not allocating income to beneficiaries results in the Trust facing a larger than necessary tax cost” HWI warned its clients. It meant that tax on the Trusts income had to be paid at 33 per cent instead of the lower marginal rate that the beneficiaries might have paid otherwise.

The Costs of an Accountant:

One of the arguments against using an Accountant is cost.

Accountants should either charge a fixed fee for their work or be upfront about the hourly rate, with an estimate of the overall cost.

The Accountant should also approach the client as soon as it becomes apparent that the estimate is likely to be breached so that they can talk about it.

One way of saving money is to do some of the book-keeping yourself. Software such at XERO and SAASU can make the Accountants job easier, freeing them up to provide business and structuring advice.

One small business cut its accountancy fee from $5,000 to $1,500 a year by using XERO, which costs just under $600 a year, letting its Accountant focus on opportunities to save money.