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5 Bookkeeping Tips for Those who are Self-Employed

5 Bookkeeping Tips for Those who are Self-Employed

By | Blog, How To, Small Business Tips | No Comments

What are the best bookkeeping tips for self-employed individuals?

  1. Keep logs of your  income & expenses.
  2. Hold on to all financial documents.
  3. Separate professional and personal assets.
  4. Educate yourself in finance and taxation.
  5. Make use of available tools available to simplify the process.

 

One of the biggest walls that self-employed individuals often run into is handling their finances. It’s more than just filing and paying their taxes – because those in the Philippines can use an online tax calculator for that – but the entirety of managing their money.

Handling your own finances is one of the many responsibilities that come with being self-employed and also one that not many are ready for. It is not a skill that can be learned overnight, which makes it even harder to develop. It takes weeks, months, maybe even years to be able to do it properly.

However, if you have enough drive and determination, then you’ll be able to learn how to do it in the nick of time. We’ve even left some bookkeeping tips for the self-employed and all you have to do is to scroll down:

Keeping track of expenses

Keep Logs of Your Income & Expenses

One of the best ways to stay on top of your financial situation is to keep detailed logs of your income and expenses. Sure, online and mobile banking has given us the ability to check our balance at any moment, but do not be satisfied with this. Although you know how much you have, it doesn’t exactly tell you when and where your money is coming and going.

Having actual logs of your expenses will allow you to check your spending habits and adjust accordingly. It will also make budgeting easier since you’ll be able to see where you can cut down costs. Plus, this is another great way to keep track of your cash inflow vs. outflow. And that’s how you’ll know if you are making profit or not with your business.

 

Hold on to All Financial Documents

On the off chance that you or your business gets audited or investigated, you are going to be asked to present several documents like invoices and bank statements. If you can’t provide any, then you’ll be put under a bad and may get into some trouble.

Besides this fact, financial documents can also help lessen your tax. If you provide proof that a purchase or transaction was made for the purpose of your business, then you can immediately deduct it from your total tax due.

Moreover, it makes tracking your expenses a lot easier if you hold on to the documents. But don’t just chuck them in your desk drawer. File your receipts, statements, and other documents in chronological order so you can easily access them at any time.

Assets

Separate Professional and Personal Assets

It’s hard to separate your professional and personal assets when you’re working for yourself. The line between the two is often blurred since work is so heavily integrated into your daily life. However, you need to make the effort to clear the line between them, and you can do this by opening up separate accounts for your business transactions.

There are many benefits that come with doing this and one is that it allows you to see just exactly how much money is tied up in your business. It also prevents you from getting into financial trouble because budgeting and costing are made simpler. By the end of every year, you’ll find it easier to track your business activity because your personal expenses have already been separated from your business ones.

Educate Yourself in Finance and Taxation

Knowledge and information is the best thing to have when it comes to managing your finances, especially for self-employed individuals who are aiming to build their brand. You’ll be surprised at how quickly freelancers and start-up businesses lose their money because of lack of knowledge on the matter.

This doesn’t mean, however, that you have to get some type of formal education on finance and taxation. There’re lots to learn when it comes to bookkeeping like effective and plausible ways on how to cut back, save, and make money, and you can learn all of them through online resources or by asking the right people.

 

Make Use of Technology to Simplify the Bookkeeping Process

For many of us, as much as we’d like to diligently keep our books, we may not have the time to do it ourselves, nor the budget to hire a bookkeeper for us. That’s where technology comes in. There are online apps you could use such as Taxumo, that allows freelancers and SMEs  to simplify the bookkeeping process, by auto-generating journal entries, which you can download, paste / transfer to your Manual Books of Accounts. 

 

Key Takeaway

It’s hard to be self-employed and manage all your finances and taxes on top of your workload. Thankfully, those in the Philippines can use an online tax calculator to lessen the difficulty of filing and computing taxes, but what about the rest of the money stuff? How do you make bookkeeping easier?

Well, it starts by developing the right habits and obtaining the right information. If you just follow the tips listed above, you’ll be able to properly handle your finances like the true boss that you are!

 

File & Pay Taxes Online In Minutes!

How to File BIR Form 1701Q

How to File BIR Form 1701Q

By | How To, Tax Hacks, Tax Rules, TRAIN | No Comments

One of your major responsibilities as a freelancer or sole proprietor is filing your BIR form 1701Q. This is submitted quarterly for the first quarter, second quarter and third quarter.

Who are required to use the BIR form 1701Q?

This must be accomplished and filed in triplicate by the following individuals:

1. A resident citizen engaged in trade, business, or practice of profession within and without the Philippines.

2. A resident alien, non-resident citizen or non-resident alien individual engaged in trade, business or practice of profession within the Philippines.

3. A trustee of a trust, guardian of a minor, executor/administrator of an estate, or any person acting in any fiduciary capacity for any person, where such trust, estate, minor, or person is engaged in trade or business.

Do I have to file Quarterly Income Tax?

Under the new TRAIN law, those who earn less than P250,000 annually are exempt from paying income tax return.  So if you fall under this bracket, you don’t have to pay your quarterly ITR. Having said that, we do recommend that you still file your Quarterly ITR’s. As we said previously in an earlier article, imagine needing to have an ITR and then having to explain how tax exemptions work to whoever you’re talking to. Yeah, good luck.

Check out the new Income Tax Table under TRAIN. Take note that the rates will go lower in 2023.

bir form 1701Q

My annual income is more than P250,000. How do I compute my dues?

The TRAIN law gives you two options for filing and computing your taxes. You can either follow the 3% percentage + income tax or use the new 8% Gross Receipt Tax.

Now, the 8% Gross receipt Tax might sound easier for you, but keep in mind that it’s not for everyone. To know if you’re making the right choice, check out this tax calculator that we made for you.

How do I compute my income tax dues if I opt for the 8% Income Tax Rate?

The first thing you need to know is whether your earnings come solely from your business or profession, or if your earnings come from both compensation and business/profession.  After which, you can apply the formula below applicable to you:

 Income Solely from Business / Profession:

Total Income Tax Due = 0.08 * (Gross Sales – 250,000)

Mixed Income Earner:

Total Income Tax Due = (0.08 * Gross Sales) + Tax Due on Compensation

As you can see, the Php 250,000 deduction is NOT applied for Mixed Income Earners. Reason for this is because the Php 250,000 has already been deducted from the tax due based on compensation so it no longer applies to the tax from your business.

What are the attachments required for filing my quarterly return?

Here are the documents you need to prepare:

1. Certificate of Income Tax Withheld at Source (BIR Form 2307), if applicable.

2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable.

3. Duly approved Tax Debit Memo, if applicable.

4. Previously filed return, if an amended return is filed for the same quarter.

When and where do I file my BIR Form 1701Q?

You must file your income tax return with any Authorized Agent Bank (AAB) located within the territorial jurisdiction of your Revenue District Office. Present your accomplished BIR form 1701Q with the requirements and your payment. The teller of the AAB or the RDO officer will give you a copy of your stamped and validated form.

For “No Payment” returns, you only have to attach the required documents to your BIR form 1701Q. You will also receive a copy of your stamped and validated form.

In case your place doesn’t have any AABs, you can file this directly with the Revenue Collection Officer or duly Authorized City or Municipal Treasurer of the RDO.

The deadlines for filing of BIR form 1701Q are:

1st quarter: On or before May 15
2nd quarter: On or before August 15
3rd quarter: On or before November 15

Remember, the BIR doesn’t give extensions to these deadlines. Taxpayers are encouraged and expected to file as early as they can to avoid the usual inconveniences during the last day of filing.

How do I accomplish and compute my quarterly income tax returns?

1. Fill out the Part 1 of BIR form 1701Q. This includes your TIN, registered name, registered address, the line of business or occupation, and other applicable information.

2. The Part 2 of the form states the computation of your quarterly income tax. Put your Sales/Revenues/Receipts/Fees. Add the Amount You Received as a Partner from General Professional Partnership, if there’s any.

3. Determine your Gross Income by subtracting your Cost of Sales/Services to your total sales or revenue. If you’re a freelancer, your cost of services will include internet fees, freelance platform fees, etc. For sole proprietors, you can put your building rental, internet cost, salaries of your employees, and other relevant expenses.

4. After getting your Total Gross Income, determine and compute your Total Allowable Deductions. You can choose between Itemized Deduction and Optional Standard Deduction. Take note that neither of these options is available for you if you pick the 8% Gross Receipt Tax.

  • OSD- This allows you claim a deduction of 40% from your gross sales or receipts for the quarter.
  • Itemized Deduction- You have to identify and deduct all the ordinary and necessary expenses from your gross income. These expenses must attribute to the development, management, and operation of your business, like travel and salaries.

5. Subtract your Allowable Deduction from your Total Gross Income to get your Taxable Income.

6. Compute your Tax Due by using the tax table under the TRAIN Law.

7. Determine your Tax Payable by deducting the Total Tax Credits/Payments for the Quarter from your Tax Due. This includes Credible Tax Withheld from the previous Quarters, Credible Tax Withheld per BIR Form 2307, and Prior Year’s Excess Credits.

Is there any easier way to prepare, file and pay my income tax return?

Let’s admit. The computations and filling up of forms can be quite tedious. Fortunately, there is Taxumo, a web-based tax filing app that lets you skip the manual computing of tax dues and accomplishing of BIR form 1701Q.  Instead, you would only need to enter your income and expenses, and you get your tax dues auto-calculated real time.  The BIR form 1701Q is also auto-generated so no need for filling up and printing of forms. Best part is that with a click of a button, you could submit your taxes online. You can check it out here.

Are there any penalties if I missed the deadline for filing?

Absolutely. Apart from your tax due, you have to pay a 25% surcharge, a 20% interest per annum, and a compromise penalty. If you choose to neglect to file the return, there is a penalty of 50% of the tax due.

Refusal to pay penalties will be referred to the appropriate office for criminal action, so make sure that you pay your taxes on time

 

File & Pay Taxes Online In Minutes!

Hungry for more? Visit our Taxumo blog HERE.  
changing-TRAIN-8-income-tax-rate-gross-sales-receipts

How to Avail of the 8% Income Tax Rate on Gross Sales/Receipts

By | How To, Tax reform, TRAIN | 35 Comments

Income Tax for 2018 in the Philippines has been an interesting space lately because of the TRAIN Law (aka R.A. 10963). For self-employed individuals, it has been of particular interest because they now have an option to avail of a simpler 8% Income Tax Rate Option.

The BIR released Revenue Regulation 8-2018 which details how the income tax changes as per TRAIN will be applied. It answers a LOT of questions but it still leaves a few unanswered.

Find out how to opt in here

De-cluttering Your Workspace: Why de-clutter your work space now (and how to get started)

De-cluttering Your Workspace: Why de-clutter your work space now (and how to get started)

By | How To, Small Business Tips, Thoughtpieces | No Comments

Whether you are a business owner, freelancer or a  professional, we all spend a significant amount of time at work and sometimes even more than we spend at home.

With all the stress and challenges that comes with our work life, wouldn’t you want a work space where you can be comfortable and feel emotionally and mentally healthy? A space that boosts clarity, creativity, and productivity? A place that encourages collaboration and trusting relationship with your colleagues and clients?

Learn how to de-clutter your workspace here…

How-to-transfer-your-RDO-using-BIR-Form-1905

How to Transfer Your RDO Using BIR Form 1905

By | How To | 50 Comments

Congratulations! You’ve finally decided to resign from your job and go full time into your profession. Whether you’re going to become a freelancer, a licensed professional, or a small business owner, you’re now your own boss! Now to make sure that things are on the up and up, the first thing you’ll have to do is transfer your RDO – from the RDO of your employer to YOUR RDO. Fortunately, the process is easy and quite painless by using the BIR Form 1905.

Learn how to transfer your RDO here…