How Can I Reduce My Tax Bill Legally?

How Can I Reduce My Tax Bill Legally?

How Can I Reduce My Tax Bill Legally?

Nobody wants to pay more tax than they have to. The good news is that there are completely legal ways to reduce your tax bill in New Zealand—without risking penalties from the IRD.

By making smart financial decisions, keeping accurate records, and using tax incentives wisely, you can lower your taxable income while staying fully compliant.

Here are some of the best ways to legally reduce your tax bill.


1. Claim All Eligible Business Expenses

Every business has costs, and many of them can be deducted from your taxable income.

What Can You Claim?

  • Office expenses – Rent, utilities, phone bills, and internet.
  • Vehicle costs – Petrol, mileage, repairs (business-use portion).
  • Marketing and advertising – Website costs, social media ads, business cards.
  • Professional services – Accounting, legal fees, and consultants.
  • Depreciation on assets – More on this below.

How to Maximise Expense Claims:

  • Keep detailed records and receipts for every business-related expense.
  • Use accounting software to track expenses efficiently.
  • Ensure expenses are legitimate and necessary for running your business.


2. Use Depreciation to Lower Taxable Income

If your business owns assets like vehicles, computers, or machinery, you can claim depreciation on them each year.

  • Depreciation allows you to spread the cost of expensive assets over their useful life.
  • This reduces taxable income without requiring extra cash outflow.

How to Use Depreciation Effectively:

  • Identify which assets qualify for depreciation deductions under IRD rules.
  • Use the IRD’s depreciation rates to determine your deductions.
  • Consider accelerated depreciation for new business equipment.


3. Contribute to KiwiSaver (If You Have Employees)

KiwiSaver is not just a retirement savings tool—it can also help reduce your business tax bill.

  • Employer KiwiSaver contributions (minimum 3%) are tax-deductible business expenses.
  • This reduces your company’s taxable profit while benefiting your employees.

How to Use This Tax Strategy:

  • If you own a company, pay yourself a salary and contribute to KiwiSaver.
  • If you have employees, make sure contributions are correctly deducted from taxable income.


4. Structure Your Business Efficiently

Your business structure plays a major role in how much tax you pay.

  • Sole traders pay tax at personal income tax rates, which can be as high as 39%.
  • Companies pay a flat tax rate of 28%, which can be beneficial for growing businesses.
  • Trusts have flexible tax options, depending on how income is distributed.

How to Choose the Right Structure:

  • If your profits are growing, consider switching from sole trader to a company for lower tax rates.
  • If you’re a business owner with multiple income streams, setting up a trust could provide asset protection and tax benefits.
  • Always consult with a tax expert before restructuring.


5. Consider Income Splitting

Income splitting allows business owners to share taxable income with family members, potentially reducing overall tax liability.

How It Works:

  • If a family member legitimately works in your business, you can pay them a salary instead of taking all the income yourself.
  • This moves some income into lower tax brackets, reducing your personal tax rate.

Important Considerations:

  • Wages paid to family members must be reasonable for the work they perform.
  • You must keep payroll records and comply with PAYE rules.


6. Utilise Tax Credits & Incentives

The IRD offers tax credits and incentives for certain business activities. Make sure you’re taking advantage of them.

Available Tax Credits:

  • R&D Tax Credit – If your business does research and development, you may qualify for tax credits.
  • Charitable Donations – Donations to registered charities are eligible for a 33.33% tax credit.
  • Loss Carry-Forward and Carry-Back – If your business has made a loss, you may be able to offset it against future or past profits.

How to Use Tax Credits Effectively:

  • Keep detailed records of all donations and R&D expenses.
  • Work with an accountant to determine eligibility for tax credits.
  • Regularly review IRD tax policies to stay updated on available incentives.


Final Thoughts

Reducing your tax bill legally is all about smart financial management. By claiming all eligible expenses, structuring your business efficiently, using depreciation, and taking advantage of tax credits, you can keep more of your hard-earned money while staying compliant.

If you're looking for expert advice on minimising tax legally, TaxFix is here to help. Our team can review your tax strategy, identify opportunities for savings, and keep you fully compliant with IRD regulations.

Ready to save on tax? Get in touch with us today!

Back to blog