Category

Tax Rules

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.  
Pay Taxes online and cut back on forms and lines with Taxumo

TRAIN’s New 8% Tax – Does it really save you money?

By | Tax reform, Tax Rules, Tax Savings | 52 Comments

The Tax Reform for Acceleration and Inclusion (more popularly known as TRAIN, less popularly known as RA No. 10963) has been signed.  This has opened up more options for Individuals, SME’s, Professionals, and Freelancers when it comes to paying taxes.

TRAIN’s New Tax Option

In particular, TRAIN gives us a new 8% Gross Receipt Tax that you can choose to file instead of filing the Percentage & Income Taxes. This is an intriguing choice as it definitely makes computing easier. Just multiply your total income (above 250K) by 8%! Then I asked myself, yes it’s easy but is it cheaper? Will I get out ahead if I just opt to pay 8%?

Read on to see if the new 8% Tax will save you money…

TAX-5

What You Need to Hear About the BMBE Law

By | New Business, Tax Rules, Tax Savings, Thoughtpieces | 6 Comments

The BMBE Law (Barangay Micro Business Enterprise)  (copy of the law here) has certainly come a long way.

If you had applied for it in 2013, you might have encountered staff and officers at the municipal hall’s business permits and licensing office blankly wondering what the heck are you applying for.

But now, it’s one of the first things small-scale entrepreneurs ask about.

There’s plenty of information online about the BMBE Law nowadays, so I won’t write anymore about the stuff you’ll find rewritten in various forms all over the Internet.

Instead, let’s talk about the nitty-gritties of the BMBE Law—the stuff you seldom hear about.
Read More

Withholding Taxes Philippines

Withholding Tax 101 (or, ‘Why Is My Pay Less Than What My Client Said It Would Be?’)

By | Tax Rules, Tax Savings, Thoughtpieces | No Comments
Withholding Taxes Philippines

How withholding tax feels like, sometimes: someone taking a bite out of your favorite doughnut before you can eat it. (Then again, lessening calories can be good for you.)

If you’re a freelancer with local clients, you must be familiar with withholding tax. 

Simply put, it’s the amount of money that your client deducts from the amount you’re supposed to receive. So if you’re expecting, say, Php 3,000, you might end up getting Php 2,700 instead.

Where did that missing Php 300 go?

It went to your withholding tax

Withholding tax: What Is It? Read More

Basic Taxes Every Proprietor and Professional Needs to Pay to the Bureau of Internal Revenue

Basic Types of Taxes Every Proprietor and Professional Needs to Pay to the BIR

By | Tax Rules, Thoughtpieces | No Comments

Basic Taxes Every Proprietor and Professional Needs to Pay to the Bureau of Internal Revenue

Many of us who start a business come from a regular employment setting.  So when we decide to register our business with the Bureau of Internal Revenue (BIR), it comes as a shock when we learn that there are several types of taxes.

Yes, aside from income tax, there are other types of taxes that a business owner needs to pay–and that they need to file various tax forms many times a year.

Of course, we can’t spare you the payments, but we can at least spare you the shock.

Here, for your reading pleasure, are all the basic types of taxes and fees every professional or business owner needs to pay once they have registered with the BIR:

Read More

Real Estate Tax Amnesty Bill

Will the Philippines’ New Real Estate Tax Amnesty Bill Affect Your Property Taxes?

By | Tax Rules, Thoughtpieces | No Comments

.Real Estate Tax Amnesty Bill

If you’ve been following the news recently, you would know that Congress unanimously approved House Bill No 4814 or The Real Estate Tax Amnesty Bill.

Anyone who owns real estate properties will find this significant to them. It is a tax amnesty on real estate taxes.

Before delving into the content of the Real Estate Tax Amnesty Bill, it is noteworthy to explain certain legal concepts.

What is Estate Tax? Read More

Duterte's Solution to Philippine Debt Despite Lower Income Taxes

With Lower Income Taxes, How Will Duterte Deal with the Philippines’ Huge National Debt?

By | Economy, Tax reform, Tax Rules | No Comments
Duterte's Solution to Philippine Debt Despite Lower Income Taxes

President Duterte’s photo taken from DuterteNews.com

The Duterte administration is aware of the potential risk of lowering Philippine income taxes. This is how he might manage the Philippines’ tremendous national debt—in the face of rising interest rates.

Ever wondered how much is the Philippines’ total debt?

Can you guess without Googling it? No?

Read More

Lower tax rates for the Philippines

How can we get lower taxes in the Philippines?

By | Tax reform, Tax Rules | No Comments
Lower tax rates for the Philippines

Lowering taxes for Filipino businesses is possible, but it will take a lot of compromise

Lowering taxes in the Philippines is possible, but it will take a lot of compromise for us to move things forward.

HOW CAN IT BE DONE?

There’s been several proposals of late aiming to lower the tax rates for the Philippines’ middle class. These include, among others, lessening the individual income tax rates, exemptions for start-ups, and one-time exemptions from the estate tax.  People are certainly having their fingers (and toes?) crossed as taxes here are universally acknowledged to be quite high.

Lowering the rates like tax exemption on all income below P240,000 (based on current proposal) would be a godsend.  Small businesses, meanwhile, need all the support to compete with the big boys, and a tax holiday can be that booster shot. And increasing the threshold for estate taxes would surely help certain families avoid having to borrow or worse be forced sell their ancestral home, just to pay the estate tax bill.  But as you lower income taxes on one end, the government needs to be certain that the total tax receipts will not decline significantly AND abruptly, that it negatively impacts delivery of basic social services. And this need to find immediate alternative sources to go along is where things get complicated.

IS TAX REFORM THE ANSWER?

The proposed tax reform package include revenue “raising” measures to offset the income tax reduction for the middle class. Like introducing a higher 35% (yes 35%) rate for any income exceeding P1,450,000 in the year 2018, elimination of VAT exemptions for seniors and PWDs, and raising VAT on petroleum products.  As expected, there is now considerable pushback to the notion of increasing VAT as this would hurt the poor. Because they’re more likely to save less and spend a greater portion of their income on consumption (and VAT).  So here we are now, stuck yet again. Some are now wondering if the promise of lower taxes is just that, an empty promise.

Many members of Congress (including some allied with the administration) are against raising the VAT, with some suggesting we should just tax the rich further. But think about this for a moment. The 2016 Forbes billionaires list has eleven Filipinos with a total wealth of $42.75 billion or approximately P2 trillion, and all that wealth, all of it, is not even enough to finance our government’s 2017 budget of P3.3 trillion. Suppose we seize all their wealth, what’s next and who’s next after we’ve spent all of it? Do we then target the next eleven richest families?

EFFICIENCY OF TAX COLLECTION

The obvious answer is we go after tax evaders.  But it would be foolish to expect President Duterte (or any administration) to be able to eradicate tax evasion within months or years.  With the millions of self-employed individuals and businesses, it may even take a generation to change this culture that one can get away without paying taxes.  We may have to consider introducing a fair tax amnesty plan to encourage people out of the shadows.  But this can’t be free pass and must go along with very tough penalties for dodging taxes going forward. Plus, a law that will prevent succeeding administrations from granting further tax amnesties as such would defeat the purpose.

Various self-proclaimed tax experts have a laundry list of suggestions, but one item that is absolutely necessary, however unpopular, is the need to expand the tax base. Expanding the tax base will likely include removing certain tax exemptions, and will impact certain industries and lower-income households.  But taxing the rich alone simply is not enough. The math doesn’t work at all.

So how do we get things done? How can we reduce taxes without putting a big hole in our government’s budget, a budget that for many is still not enough to address our country’s infrastructure needs and increasing welfare costs?  There’s only so much taxes the rich or anyone can stomach. No one would wish our business people to choose to invest elsewhere.

ROLE OF THE CURRENT ADMINISTRATION

Hopefully, the Duterte administration with its current favorable trust ratings can effectively explain to the public why expanding the tax base now, i.e. increases to VAT (but maybe a bit less than what is currently proposed) is the right long-term solution.

On the other hand, maybe they would have to scale down the proposed income tax cuts. I’m sure everyone would be happy with a lower income tax cut, rather than us being stuck and nothing happening.

This is no easy task.  Every sector and every business group wants a bigger slice of the “tax-cut” pie. Virtually no one wants a tax increase if it affects them.  We need to compromise for us to move things forward. We need this to finally implement sensible reforms that will finally grant much needed tax relief to our middle class in a manner that:

  • does not take away funding for our infrastructure backlog;
  • through tax cuts that are sustainable;
  • and will not impact our country’s fiscal health and credit rating.

Our country has gone from the “sick man of Asia” to one of the world’s fastest growing economies. We can surely make this work by coming together.

Yes we can!

Taxumo

Option O, or Option Ooh(Episode III)

By | New Business, Tax Rules, Tax Savings | No Comments

Hi guys, please check out a couple of our earlier blogs/episodes to follow JCruz’s tax questions.

 

Our triathlon coach, JCruz, is now at a stage where he’s choosing between accepting BIR’s peace offering, the Optional Standard Deduction (OSD), or attempt to identify, segregate, and document all his receipts/expenses. His monthly revenue is P30,000, and below is summary of his monthly expenses, excluding those paid for/reimbursed by his clients.

Transo/gas/parking            2,500

Meeting costs/food             2,000

Equipment                            2,500

Miscellaneous                      2,000

Total                                      9,000

*rent “difference”               3,500

In our previous blog we mentioned most of JCruz’s bills, and the lease, are not under his name. Plus it’s not that simple to split, say, the gas bill between personal and business. Under BIR rules JCruz must track, segregate and secure proper receipts for every single peso for these bills to qualify as tax deductions…yes, every single expense. This is referred to as “Itemized Deduction”, or what I call Option Ooh, because that’s the reaction I get whenever I explain how it works. Or he may choose OSD (let’s call this Option O) and limit expenses at 40% of revenue, which in this case would be P12,000 (P30,000 x 40%). This P12,000 is a bit under JCruz’ initial list of P12,500 (P9,000 + 3,500), but if he selects Option O it is an automatic P12,000 deduction. Simple. No further info needed.

And there two other advantages. Unlike Option “Ooh”, there is no need to list down every single type of expense (just one line, that’s it). Secondly, under Option “O” or OSD,  there’s no need to file audited financial statements should your revenues exceed P150,000 in any given quarter. “Audited” means you need to hire/pay a separate CPA (other than your accountant, if you have one) to basically check your or the accountant’s numbers.

Of course OSD is not for all. For taxpayers under special tax rates they must report and itemize all expenses to the BIR. There are also businesses with very low margins (ex. a supermarket) where that would be a bad choice. But for many professionals and especially home-based solopreneurs, OSD could be a far easier and cheaper way to file income taxes.