Sole Trader Tax Return NZ 2026 — Step-by-Step IR3 Guide

Filing your IR3 as a sole trader is more involved than an employee’s tax return, you must declare all business income, claim allowable expenses, and send either an IR10 financial statements summary or a set of accounts. This step-by-step guide walks you through the full process.

Before You Start: What You Need

Gather these before logging into myIR:

Income records:

• Total invoices issued / payments received (business income)
• Bank statements confirming income received
• Employer earnings summary (if you also had PAYE employment)
• Interest certificates from banks
• Any dividends received

Expense records:

• Receipts and invoices for all business expenses
• Vehicle logbook (if claiming vehicle costs)
• Home office calculations (floor area share of eligible costs, or the square metre rate if you use it)
• Asset register (for depreciation calculations)

Other:

• Previous year’s IR3 (for comparison and prior year figures)
• Any provisional tax instalments paid (visible in myIR)
• Student loan balance (if applicable)
• KiwiSaver contribution amount (voluntary contributions)

Key Deadlines

Step 1: Calculate Your Business Income

Add up all revenue received from your business during the tax year (1 April 2025 – 31 March 2026). This includes:

• All invoices paid by clients
• Cash receipts
• Payments in kind (valued at market value)
• Cancelled debt (if a client’s debt you wrote off is later paid)

Income is taxed in the year it is derived. IRD says that on a cash basis income is derived when it is received, and on an accrual basis when it is earned, and that which basis applies depends on the nature of your business, not on choice. IRD’s guidance says the cash basis can suit, for example, a professional selling only their own services, and that the accrual basis will be appropriate in most other situations where income is earned from professional services.

Step 2: Calculate Allowable Deductions

Subtract your allowable business expenses from gross income. Common categories:

Net business income = Gross revenue − Total allowable expenses

This net figure is what flows into your IR3 as taxable business income.

Step 3: Complete the IR10 (If Required)

If you have untaxed business income, IRD’s IR3 instructions list the IR10 (Financial Statements Summary) as a form you may need to fill out with your IR3, and IRD says completing it speeds up the processing of your return. The IR10 captures:

• Total income (broken into categories)
• Total expenses (broken into categories)
• Net profit / loss
• Key balance sheet figures (assets, liabilities, equity)

You still need to prepare a set of accounts and keep them in case IRD asks, but you do not need to send them if you use the IR10, which is a short form of your financial statements. However, you need your totals to be accurate and categorised.

IRD may select a business for an audit when the information in its returns shows an unusual pattern, or one that is inconsistent with industry norms.

Step 4: File Your IR3 via myIR

1. Log in at myir.ird.govt.nz
2. Go to your income tax account, select More, then File or amend a return
3. Select the 2025–26 tax year
4. Review pre-populated data (wages, interest — check these are correct)
5. Enter business income and expenses
6. Complete the IR10 if required
7. Enter other income (rental, interest if not pre-populated)
8. Claim the IETC if you qualify (donation tax credits are claimed separately, in myIR or on an IR526 form)
9. Confirm student loan details if applicable
10. Review the summary — myIR calculates tax automatically
11. Submit

Step 5: Review Your Tax Outcome

After submission, myIR shows:

If you have a refund: Check that IRD has your correct bank account details. IRD pays it into that account when it processes your assessment, and your bank may then take a few days to credit it.

If you have terminal tax to pay: This is the balance of tax owed after your provisional tax payments are credited. Due by 7 February 2027 (or 7 April with a tax agent). Pay via:

• myIR (bank card or direct debit)
• Internet banking (use your bank’s Pay Tax option with your IRD number and the tax type)
• At a Westpac branch

If you have a large terminal tax bill: This can happen in the first year of self-employment, because with the standard, estimation or ratio options no provisional tax is paid in the first year. In later years you pay provisional tax if you had more than $5,000 tax to pay on your last return, which spreads the cost across the year.

Common Mistakes to Avoid

1. Not separating business and personal bank accounts Commingling funds makes it difficult to identify business income and expenses. Open a dedicated business account before you start trading.

2. Forgetting to include cash income Cash payments for your work are income you must include in your return. In an audit, IRD can check your records, including business and private bank accounts, against the income shown in your returns.

3. Claiming personal expenses as business Claiming meals, holidays, or personal purchases as business expenses is one of the most common audit triggers. Costs of a private or domestic nature are not deductible, and a cost with both private and business use has to be split on a reasonable basis.

4. Missing depreciation Assets kept in the business for longer than a year are depreciated rather than deducted all at once, apart from low-value assets. IRD requires assets over $1,000 to be depreciated at set rates.

5. Not keeping records Records make it easier to work out your income and expenses, and IRD checks them if it audits you. Keep all receipts and invoices for 7 years.

6. Missing the filing deadline A late IR3 can attract a late filing penalty unless you have an extension of time or a valid reason. File on time even if you cannot pay the tax. Late filing and late payment each carry their own penalties, and an instalment arrangement is an option if you cannot pay by the due date.

Should I Use Accounting Software?

For most sole traders with more than minimal activity, accounting software significantly reduces compliance time and risk:

Hnry is a paid service for self-employed people: it calculates and pays income tax, GST, ACC levies and student loan repayments from income paid into its account, and its accountants file income tax and GST returns, for a 1% + GST fee on that income.

Frequently Asked Questions

Do I need a separate bank account as a sole trader?

IRD says it can be helpful to keep separate bank accounts for your business, and if you use one account for both you need to show clearly the personal money you take out and put in. A separate account makes it simple to identify business income and expenses, which is essential for accurate tax filing.

Can I file a paper IR3?

Yes, you can download and print the form if you do not have myIR, but in myIR the details of income you received that had tax deducted are included automatically. With a paper IR3, IRD sends you a Summary of Income in the mail separately. Use myIR wherever possible.

What if I made a loss?

If your business expenses exceeded your business income, you have a business loss. This loss can be offset against other income (wages, rental income) to reduce your total taxable income. A loss can be carried forward to reduce your taxable income in the next tax year, and any excess keeps carrying forward until it is used up.

I have both a job and a side business — how do I file?

Your main employment uses your main tax code, and your employer deducts PAYE. You declare your employment income on your IR3 (pre-populated by IRD) and also declare your business income and expenses. The combined income is assessed at your correct marginal rate.

Related Guides

• Self-Employed Tax Guide NZ
• Business Expenses You Can Claim
• Provisional Tax Explained
• How to File an NZ Tax Return (IR3)
• GST for Small Businesses NZ
• Self-Employed Tax Home