Here’s all you need to know about your tax obligations
Side hustles are more than just a way to make extra cash; they can be an expression of your passions or a step towards financial independence.
But as your side hustle grows, it’s crucial to understand the tax implications that come with the extra income.
Inland Revenue (IRD) requires New Zealand residents to declare earnings from any and all sources, including side hustles, which can range from freelance gigs to selling products on platforms like Trade Me or Etsy.
Know Your Tax Responsibilities
Firstly, determine if your side hustle is considered a hobby or a business, as this affects your tax responsibilities.
If you’re consistently earning money with the intent to make a profit, it’s likely a business. Once your side hustle is deemed a business, you’ll need to:
- Register for an IRD Number: If you don’t already have one, you need to apply for an IRD number and file an income tax return.
- Keep Accurate Records: Maintain detailed records of all income and expenses. This will simplify filing your tax return and can provide deductions that can lower your taxable income.
- Understand GST: If your side hustle’s annual income exceeds NZD $60,000, you must register for Goods and Services Tax (GST), charge GST on your sales, and file regular GST returns.
- File Your Tax Return: You need to declare your side hustle income by filing an Individual tax return (IR3) each year.
Deductible Expenses
Running a side hustle can involve various expenditures, but the silver lining is that many of these costs can be deducted from your taxable income.
Common deductible expenses include:
- Goods purchased for the purpose of selling
- Home office expenses if you work remotely (portion of rent/mortgage, utilities, etc)
- Marketing and advertising costs
- Business-related travel
- Equipment and tools that cost $1,000 or less
Provisional Tax
If you owe more than NZD $5,000 in tax from your side hustle, you’ll enter the realm of provisional tax. You’ll then pay your tax obligations in instalments during the year instead of a lump sum.
Get Professional Advice
Tax can be complex, and correctly reporting your side hustle income can involve navigating various tax laws and regulations.
Seeking advice from Afirmo, who understands the nuances of New Zealand’s tax system can save you time, ensure compliance, and possibly reduce your tax burden.
Embracing your entrepreneurial spirit can indeed bring financial gains, but it’s essential to stay on the right side of tax laws to avoid penalties and interest and ensure your side hustle is as rewarding as possible.
Remember to tap into Afirmo’s Learning Hub resources for information on tax management, ensuring your side venture remains both profitable and compliant.
