is drawings taxable ?

Small businesses or company owners usually ask, what is the best way of taking our money from business?

 

When to withdraw (Drawings) from business? 

If you are good with money & can save for taxes that needs to paid each year, then drawings is best. 

Pros:

  • Take money out anytime you want
  • Taxes can wait 1 year or more before you need to pay

Cons

  • Most businesses lag behind in tax payments because they have used all the drawings
  • If you don’s save for taxes, then tax liability increases next year with Prov Tax
  • Attracts interest & Penalties if taxes are paid late
  • You get Invoices from ACC 
  • No Kiwisaver is accumulated unless you put some aside

When to pay yourself salary?

You can also pay yourself as an employee, each week/fortnight/month. As long as you keep a proper payroll software which files PAYE on time. We recommend Thankyou Payroll . Its Free!

Pros:

  • Taxes are paid each pay day
  • No shocking tax bills
  • No stress at year end
  • No late penalties & interests 
  • ACC is paid on time
  • Kiwisaver is paid on time
  • Easier to get Home Loan or Business Loans

Cons:

  • You need to manage payroll system

Most small businesses opt for drawings as its much simpler . Our recommendation is if your business is consistent & making money, you must starting paying yourself a salary & avoid stress of tax bill at year end.

Saurav Verma, B.com, Xero Certified

Saurav Verma, B.com, Xero Certified

Saurav is qualified & experienced small business expert. Saurav has been helping small businesses grow with his expert advice. From past seven years he has been predominantly providing payroll & accounting support to businesses across New Zealand.

Share on facebook
Share on google
Share on twitter
Share on email