Business Basics | Sole Trader Structure

Summary

This video explains the process of starting a business as a sole trader, focusing on tax responsibilities. It introduces Lisa, a new sole trader, and covers essential steps like choosing the right business structure, registering with MyIR, and filing taxes. Lisa is responsible for all business profits, losses, and taxes. The video highlights the IR3 tax return process and the importance of keeping financial records. It also emphasizes the need for businesses earning over $60,000 to register for GST and offers tools to help with business decisions and tax filings.

Takeaways

• 😀 Starting your own business can be exciting, offering the freedom to work on your projects and manage your taxes.
• 😀 One of the first steps in starting a business is to choose the right business structure (sole trader, company, or partnership).
• 😀 In this video, we focus on sole traders and how they handle their taxes.
• 😀 As a sole trader, you run your business alone, keeping 100% of the profits but also being personally responsible for all taxes and debts.
• 😀 Sole traders, like Lisa, pay income tax on their net profit for the year.
• 😀 Lisa, as a sole trader, must inform the tax authorities that she is working for herself by sending a secure email via MyIR.
• 😀 As a sole trader, Lisa continues using her IRD number from when she was an employee, and her tax return is filed manually using the IR3 form.
• 😀 Unlike the previous year when her taxes were filed automatically as an employee, Lisa must now manually file her IR3 return by July 7th of the tax year.
• 😀 If Lisa needs more time to file, she can arrange an extension with the tax authorities.
• 😀 Sole traders should utilize online resources like ird.govt.nz to ensure they get the right guidance and tools for their business, including registering for GST if their sales exceed $60,000.

Q & A

What is the first step when starting your own business?

The first step is to choose a business structure that is right for you. The most common options are sole trader, company, and partnership.

What does it mean to be a sole trader?

Being a sole trader means running your business by yourself. You are personally responsible for all aspects of the business, including profits, losses, taxes, and debts.

How does a sole trader like Lisa handle taxes?

As a sole trader, Lisa pays income tax on her net profit for the year. She also has to file a tax return, the IR3, manually for the business's income tax.

What does Lisa need to do to inform the authorities that she is working for herself?

Lisa needs to inform the authorities that she's started working for herself by sending a secure email via her My IR account.

What changes for Lisa when she becomes a sole trader?

Not much changes for Lisa. She still uses the same IRD number as when she was an employee and only has to file her IR3 individual tax return manually.

What happens after the end of the tax year for Lisa?

After the end of the tax year (March 31st), Lisa or her accountant prepares her financial statements and calculates income tax on her business's net profit.

When is the deadline for filing Lisa's tax return as a sole trader?

The deadline for filing Lisa's tax return (IR3) is by July 7th of the year following the end of the tax year.

Can Lisa get an extension for filing her tax return?

Yes, if needed, Lisa can arrange for an extension of time with the authorities.

What tools and resources are available for businesses?

There are several useful tools and resources available, including a tool to help choose the right business structure. For more information, businesses can visit business.govt.nz.

What is the GST registration requirement for businesses?

Businesses with sales over $60,000 must register for GST and file GST returns.

What is the benefit of having a My IR account for business owners?

Having a My IR account allows business owners to file their returns online and send secure emails to the authorities, making the process easier and more efficient.