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.
