Know your tax before the bill does.

As a sole trader there is no employer quietly taking PAYE off your pay. The whole tax bill is yours to manage, and nobody sends a reminder until it is due. The good news: the maths is simpler than it looks.

You are taxed on profit, not turnover. Profit is what is left after you subtract genuine business expenses from your income. That profit gets taxed at New Zealand's individual rates, the same brackets an employee pays. The rates step up as you earn more: the first $15,600 is taxed at 10.5%, the slice from there to $53,500 at 17.5%, then 30% up to $78,100, 33% up to $180,000, and 39% above that. You only ever pay the higher rate on the slice of income inside that band, never on the whole lot.

On top of income tax sits ACC. The Earners' levy is baked into the calculator above so your take-home is honest. Your ACC Work levy, which depends on your trade, arrives as a separate invoice.

Here is the mistake that turns a good first year into a stressful one. You start trading, the work comes in, the money hits your account, and it feels like yours. So you spend it. Then two things happen at once.

First, your income tax bill for that year falls due. Second, if your tax topped $5,000, you get pushed onto provisional tax, which means paying towards next year's tax at the same time. Two bills, close together, for money you already spent. People have folded good little businesses over exactly this.

The fix costs you nothing but discipline. Take the cents-per-dollar figure from the calculator and move that much into a separate savings account every single time an invoice is paid. Do not touch it. When the bill comes, it is already there, and provisional tax stops being a threat and becomes a non-event.

Provisional tax is not an extra tax. It is just paying your income tax in instalments through the year instead of one lump at the end. You land on it once your residual income tax for a year is more than $5,000, which most full-time sole traders reach fast. IRD splits your expected bill into instalments, usually three. It feels like a hit the first year only because you catch up on last year and pre-pay this year together. After that, it smooths out.

Every legitimate expense you claim lowers your taxable profit, which is the number the calculator taxes. Miss deductions and you hand IRD money you did not owe. The ones that add up for trades:

Vehicle. If you use your ute or van for work, you can claim the work share of running costs, fuel, servicing, insurance, and depreciation. Keep a logbook so you can prove the work-versus-private split.

Tools and equipment. Hand tools, power tools, safety gear, and the gear you replace as it wears out. Bigger items may be depreciated over time rather than claimed in one hit, but they still count.

Home office. If you do your quotes, invoicing, and admin from home, you can claim a fair share of power, internet, and rates or rent based on the floor area you use for work. It is not glamorous, but over a year it is real money.

Also claim phone and internet, ACC levies, insurance, accounting fees, and materials. The rule is simple: if you spent it to earn your income, it probably counts. Keep every receipt, because a deduction you cannot prove is a deduction you cannot make.

The cents-per-invoice figure is the one to write on a sticky note. It already blends your income tax and ACC Earners' levy into a single hold-back rate for your income level. Invoice $1,000, hold back that many cents on each dollar, and the tax bill takes care of itself. Everything here is a solid estimate, not a filed return. For anything with real money riding on it, run it past an accountant.