IR10 for Sole Traders NZ: What You Need to Know

As a sole trader in New Zealand, you have the freedom and flexibility to build your own dream. But with that freedom comes paperwork, and a big part of that is managing your taxes. One form that can be confusing for many is the IR10.

Let’s break down what the IR10 is, why it exists, and how it fits into your end-of-year tax filing.

What is an IR10?

Think of the IR10 as a detailed financial summary for your business. It's not your final tax return, but rather a worksheet that helps you calculate your business's net profit or loss for the financial year. This final figure is then carried over to your main individual tax return, the IR3.

The main purpose of the IR10 is to clearly report all the income your business earned and all the legitimate expenses it incurred. For sole traders, income isn't taxed at the source like a salary, so this form is how you show Inland Revenue (IRD) exactly how you arrived at your taxable profit.

You'll need to calculate these figures if you have untaxed income from sources such as:

• Being a sole trader
• A partnership
• Rental income

For this guide, we are focusing only on the sole trader perspective.

Decoding Key Sections of the IR10

If you download the IR10 form from the IRD website, it can look like a daunting table of boxes. However, it’s quite straightforward once you break it down into its main sections.

1. Business Details

This part is simple. You'll need to fill in your name, IRD number, business name (if you use one), and address. You will also need to provide your Business Industry Classification (BIC) code, which you can find using a tool on the IRD's website.

2. Income

This section is for all the money your business has earned. The most important figure here is your Gross Income. This is the total amount of money you received from sales or services before you deduct any expenses. Simply add up all the income you received during the financial year.

3. Expenses

This is where you can claim legitimate business expenses to reduce your taxable profit. A lower profit means less tax to pay, so keeping good records throughout the year is crucial.

Common expenses you can claim include:

• Opening and Closing Stock: If your business buys and sells physical goods, you must account for the value of your stock at the beginning and end of the year. This likely won't apply if you are a service-based business like a consultant or writer.
• Purchases: This covers raw materials or goods you buy specifically to sell.
• ACC Levies: You can claim the cost of your ACC levies as a business expense.
• Vehicle Expenses: There are two main ways to claim vehicle costs:
  • Keep a logbook for at least 90 days to determine the business-use percentage of your vehicle. You can then claim that percentage of your fuel, insurance, registration, and repair costs.
  • Use the IRD's set rate per kilometre. This method is simpler, but you must keep a record of your business-related trips.
• Rent, Power, and Phone: If you work from a separate office, you can claim these costs. If you work from home, you can claim a portion of your household bills. You'll need to calculate the percentage of your home used for work. The IRD provides guidance on how to do this fairly.
• Depreciation: For larger assets like computers, tools, or furniture that lose value over time, you can't claim the full cost in one year. Instead, you claim a portion of its value each year as it depreciates. This can be complex, so getting help from an accountant is useful.
• Miscellaneous Expenses: This is a catch-all for other costs like office stationery, software subscriptions, business insurance, bank fees, marketing, and fees for your accountant or bookkeeper.

Once you total your income and subtract all your expenses, you are left with your net profit or loss. That's the magic number that goes on your IR3 tax return!

Do You Actually Need to Use the Paper Form?

No, not necessarily. If you keep track of your accounts in a spreadsheet or use accounting software (like Xero, MYOB, or Hnry), you can simply enter your total income and expense figures directly into the correct fields on your IR3 tax return.

The IR10 form is essentially a worksheet provided by the IRD to guide you through the calculation. If you already have a reliable system that gives you these totals, that's perfectly fine. The key is that you must be able to explain how you calculated your figures if the IRD ever asks. Whether you use the IR10 form or your own system, your records must be accurate and complete.

Final Thoughts

The IR10 might seem like just another piece of paperwork, but it’s a helpful tool that encourages you to properly organise your business finances and understand your performance.

Don't leave your record-keeping to the last minute. Keep receipts, track your mileage, and update your accounts regularly. This will make tax time far less stressful. And remember, if concepts like depreciation or GST become confusing, there's no shame in getting professional help. A good accountant can save you time, money, and stress in the long run.