How to improve your cash flow with early tax refunds

Many rental property owners generate taxable losses for the year. 

The taxpayer generally has 2 options:

  • Wait until the tax year ends on 31 March, prepare their rental property tax return and then wait up to 3 months for the IRD to process their income tax refund.  If the tax refund is significant, extra scrutiny from the IRD may further delay processing.
  • Apply for a special tax code.  With a special tax code an employer deducts PAYE from the tax payer at a lower rate. Therefore they effectively receive a portion of their tax refund every pay period instead of receiving one refund after their tax return has been filed.

This may not suit everybody as some tax payers prefer the lump sum tax refund.  However for those tax payers looking to increase cash flow, option 2 may be better.

This is how a special tax code works…At Business Advisory Accounting & Tax Services, we prepare a brief forecast for your rental property to estimate the loss for the forthcoming tax year and submit it to IRD for approval.  After approval, your employer deducts a smaller amount of PAYE from your regular salary, giving you the benefit of the tax loss now.

Both options produce the same tax refund but option 2 allows the tax payer to use their tax refund a lot earlier.  This “extra” cash may come in handy to repay loans, which would further increase cash flow as a result of paying less interest.

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