New Side Hustle - Questions from a tax n00b

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Forums › Finance and wealth management › New Side Hustle - Questions from a tax n00b

michaelmurfy

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#312203 26-Mar-2024 10:11

Hey all!

So my Wife and I are starting up a new side hustle selling cat toys (and perhaps her art) - Black Fur Studios if anyone is interested. The total revenue we'll get from this won't be much, it is more just for fun but basically I'm building a wee site to sell our cat toys online and we're attending some local craft markets. At first I was looking at popping this through my own business which is currently listed as a non-active company as I am more just holding the name but do have a bank account under it.

But now I am a wee bit conflicted. Things like hnry are not designed for side hustles like this and accountants are far too expensive to even consider on a small side hustle like this but also don't want the IRD chasing after us saying "oh you started this side hustle? Where's our cut?" - I am also wondering if perhaps this side hustle money should just go into a personal account but at the same time would love to get eftpos for our markets.

I fully understand that I'll likely need to seek other advise but thought I'd ask here first to see what others do knowing full well there are also accountants here. I am a complete n00b here! Cheers all!

Michael Murphy | https://murfy.nz
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mdf

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#3210970 26-Mar-2024 10:56

Tax and business structures are slightly different (but related) things.

A company is a separate legal person from its shareholders and directors. The assets and liabilities of the company are separate to those of its directors and shareholders. If the company fails, the directors and shareholders aren't liable for the debts of the company (*exceptions apply). Part of the reason for this is to encourage entrepreneurship.

An individual person is also free to start a business. This is usually called a "sole trader" (or multiple people together = a partnership). The assests and the liabilities of the business are your liabilities. If the business borrows money, you are borrowing money.

In both scenarios, you will need to keep books and records for your business and pay tax on these. Company books are records are typically much more complicated, since there are rules as to how you can move money between a company and you personally. Sole trader books and records are much simpler and you just include business income (i.e., revenue less expenses) on an IR3 tax return. If over 60K, you will also need to register for GST (you can voluntarily register at lower than 60K if you want, especially if you want to claim the input credits on your expenses).

I have done personal business via both company and as a sole trader, and find it administratively much simpler to run a (small/new/side hustle) business as a sole trader and am willing to accept the additional possibility of liability for that.

Hnry is more intended for freelancers (i.e., selling time rather than goods) but you might be able to make it work. MYOB and Xero will deal with this automatically, but I have never been able to justify the cost and have instead invested quite a bit of time reading the tax rules and creating an excel spreadsheet that works for me. And is much cheaper assuming I value my time at zero (sanity requires this).

freitasm

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#3211091 26-Mar-2024 12:26

Our accountant takes care of this but it's part of a package that involves family trust and family returns.

Contact in private and I will give more information.

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MikeAqua

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#3211181 26-Mar-2024 14:42

I have a small business. I sell small amounts of things I make through it. I found it easy enough to set up a company and GST register it.

My books are very, very simple. I do them in excel. I have three main tabs: expenses, sales and assets. From that I can generate a simple PnL for a given period and a Statement of Financial Position.

The sales subsidise my hobby (tools, cameras etc, and consumables). I have some limited revenue from YT and Amazon as well. I'm well under the GST threshold, but it's helpful to claim the GST on raw materials and equipment.

The business is modestly cashflow positive, but depreciation of machinery (per IRD rates), donations and reimbursing myself for mileage keeps the tax bill to a minimum. The online side is growing though and in a couple of years it could be a real business.

Mike

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#3211201 26-Mar-2024 15:03

You can simply declare your additional income and expenses in your annual tax return on the IRD website. All an accountant does is use a fancy method to find those numbers, and sometimes they can find ways to reduce your tax liability such as home office deductions.

NB: do not take advice from strangers on the internet.

ANglEAUT

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#3211239 26-Mar-2024 15:58

timmmay: NB: do not take advice from anybody on the internet.

There, fixed that for you. Especially considering several of us here have met IRL.

Please keep this GZ community vibrant by contributing in a constructive & respectful manner.

michaelmurfy

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#3211497 26-Mar-2024 23:48

Thanks all! That's super helpful. A few of you have reached out to offer me some advise which is amazing, thanks so much. I think I've got enough to start and will likely reach out to those who have reached out to me for a start. I especially like how many of you simply do it yourself because I was under the impression you absolutely needed an accountant for everything.

And, once I learn it is a valuable skill to have too!

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#3211503 27-Mar-2024 06:16

Suggest also reading up on provisional tax rules depending on size of any taxable profit.

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alikat

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#3211593 27-Mar-2024 14:35

Hi stranger on the internet - I'm a chartered accountant and I'm here to give non-specific tax advice on the internet. Congratulations on the new hustle.

first off, Hnry would the direction in which I would normally point you to, except they only deal with sole traders, not partnerships. I could be mistaken here, because they are the competition :)

You don't need xero, MYOB or any of that, just good record keeping.

You don't need to register for GST if your sales are under $60k in a rolling year.

You can DIY your taxes:

keep a spreadsheet of money in/money out and use a single bank account for the hustle. and take money out of that to pay yourselves.
IRD has a cashbook spreadsheet you can download and use
you can enter your business income on your IR3 through MyIR

The IRD won't chase you for tax until you've got tax due, or you become a provisional tax payer (i.e. your residual income tax is over $5000/yr) but say you're earning over $70k, put a third of your net profit (income minus expenses) aside.

Where will you find catches? Anything you buy for the business that's over $1000+GST and has an enduring benefit of over 12 months becomes an asset - eg you buy a dSLR camera for taking product shots -> depreciation, that is you write it off over time, using the rates set by the IRD and searchable on their website. MyIR even has a depreciation calculator in your tax returns if you need it. They're doing me out of a job.

Anything that is deductible must be directly related to earning income. That could include a portion of your own home (home office claim). It's mileage driving to markets, market stall rental, a table for display, materials, etc., but not what you pay yourself as sole trader(s). Buying yourself lunch while at the market is not deductible. That's personal sustenance.

I am happy to answer any queries in DM, or if you'd like a cheap and cheerful Xero package that doesn't go GST, bank feeds only, I have access to a level not available to the general public currently at $16/m + GST that I oncharge at cost (with the exception of credit card fees if paying me by Stripe)

freitasm

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#3211597 27-Mar-2024 14:57

^ best answer

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alikat

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#3211680 27-Mar-2024 19:30

timmmay:

You can simply declare your additional income and expenses in your annual tax return on the IRD website. All an accountant does is use a fancy method to find those numbers, and sometimes they can find ways to reduce your tax liability such as home office deductions.

NB: do not take advice from strangers on the internet.

No fancy magic here for finding those numbers. It is knowing the income tax act and finer details. Oh, and its a spreadsheet. Mine integrates with the Xero API to do internet magic with numbers haha.

alikat

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#3211682 27-Mar-2024 19:32

freitasm:

^ best answer

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#3211720 27-Mar-2024 22:47

As above consider looking at hnry

https://hnry.co.nz/

Although they take a percentage they handle literally everything for you. Xero and MYOB are expensive as are accountants.

If you are a sole trader I’d seriously check that out before any other options.

Source, I’m a business owner. Started as a sole trader with Excel now a 1 man company on MYOB. Been very happy with MYOB but it’s not cheap ($50 per month).

michaelmurfy

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#3211852 28-Mar-2024 12:24

Perfect advice. Thanks so much @alikat!

There's so much conflicting information online and over the last 24hrs I've done my fair share of reading also and know I'm on the right route now. In short, sole trader, hnry (I do see value in this especially around claiming) and a bunch of automation to make my life simple. I'll look at migrating off in the near future and doing it all myself but at-least I can put my mind at ease we're not going to have the IRD questioning us.

freitasm

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#3211881 28-Mar-2024 14:14

Have you considered creating a limited company in Ireland, paying royalties to that company for the designs, and then shipping the profits from Ireland to a Cayman account?

I hear all the big corporations do it...

/joke

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#3211885 28-Mar-2024 14:27

michaelmurfy:

There's so much conflicting information

This is how I felt when I first went contracting, before Hnry existed, trying to get my head around provisional and terminal tax was mind numbing. Now that I'm back contracting in the last 2 years, and Hnry exists, thank goodness is all I can say.

Even though I had everything sorted back then, I would always stress come end of financial year/tax time, but with Hnry I don't even have to give it a second thought as everything is taken care of.