Did you know that you could potentially use your upcoming tax bill, through a strategy called ‘tax pooling’, to pay off other, more expensive debts, ultimately saving your business money? This little-known strategy is one that many business owners in New Zealand aren’t aware of, but it could make a significant difference to your cash flow and financial flexibility.
Here’s how it works: instead of paying your provisional tax directly to the IRD, you can use a service like Tax Pooling Services (TPS). Think of it as a loan, but with mortgage-like rates, where your tax payment acts as security. This strategy can offer you more breathing room in terms of finances and help you manage other outstanding obligations.
Here are a few ways tax pooling can benefit your business:
1. Pay Off High-Interest Loans
If your business is carrying high-interest loans or credit card debt, using tax pooling allows you to redirect your tax payment to settle those costly debts. Since tax pooling offers a much lower interest rate than what you may be paying on loans or credit cards, this could save your business a significant amount of money over time.
2. Wipe Out Tax Penalties
If you’re behind on paying provisional tax and are facing penalties from the IRD, TPS may be able to help you wipe out those penalties. This could provide significant relief, as penalties for late tax payments can quickly add up and add extra stress to your financial situation. With tax pooling, you might be able to take advantage of a more flexible approach to clear any outstanding balances.
3. Create a Handy Cash Reserve
Tax pooling doesn’t just help with paying taxes; it can also serve as a way to create a cash reserve for your business. By using your provisional tax as collateral for a short-term loan, you can access your tax payments when you need them most. This gives you flexibility with your cash flow and can be especially helpful for businesses facing seasonal or cyclical financial pressures. Consider it a flexible line of credit that can help smooth out the highs and lows of cash flow.
In summary, tax pooling is a smart strategy for managing your business’s cash flow, paying off expensive debts, and potentially saving money. If you’re paying provisional tax, it’s worth exploring how this strategy could work for your business and help you make more strategic decisions.
Want to Learn More? If you think tax pooling could be a good fit for your business, let’s chat! We can discuss your specific situation and see how this strategy can help you manage your finances more effectively. Reach out to us today for a confidential discussion about how tax pooling can benefit your business.