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Tax Savings

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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.
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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

High local business taxes in the Philippines

What Can We Do with High Local Taxes in the Philippines?

By | Tax reform, Tax Savings | No Comments

High local business taxes in the Philippines

The proposed income tax reforms have been hogging the headlines lately. Based on the latest draft at end of February 2017, an annual basic salary of P250,000 that used to be taxed as high as P37,500, will now be ZERO (not a typo). Everyone can’t wait for this to happen. It’s about time to experience a tax REDUCTION for a change.

But while national taxes (e.g. income taxes) are getting all the media attention, there is set of taxes that are under the radar, and have risen significantly in recent years. I’m referring to city/municipal or “local” taxes.

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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.

 

 

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BIR’s peace offering (Episode II)

By | New Business, Tax Rules, Tax Savings | 2 Comments

Just like the Twilight series, please refer to earlier blog on business receipts and expenses Episode I.

 

Well we start Episode II again with our friend, triathlon coach JCruz, who’s eager to share his questions on business expenses. He has completed Step One and have identified all his “what-if” expenses, but has hit a roadblock. Turns out most of the utility bills are not under his name, his mobile postpaid plan, plus the lease agreement too. Within all these bills are his business expenses, but it can be a hassle to change all these agreements.

This is where Optional Standard Deduction (OSD) comes in. Ano yun? It’s the BIR saying for as long as an individual taxpayer is willing to limit business deductions to 40% of revenue/income, then the taxpayer need not keep the receipts/invoices for these deductions. What it really means is the BIR, in general, would ask no further questions (yey!) ONLY IF a taxpayer is not claiming just about any imaginable receipt out there, with a simple goal of paying little to no taxes. This is what I call a peace offering from the BIR (friends tayo ah) to anyone willing to claim only reasonable amounts of deductions. You see guys, the BIR can be reasonable, and this OSD option, this BIR peace offering, is one very effective way in simplifying the payment of income taxes.

So what are the other benefits of OSD (wait, there’s more?) Well, we might as well make this a trilogy. And our friend JCruz will be back for the finale.

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Akin Na Lang Ang Resibo Mo! (Episode 1)

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

May sobrang resibo ka ba dyan? Has anyone heard of that? How about a friend who volunteers to get the bill and calculate everyone’s share, because your friend needs that receipt? This is especially true for home-based professionals and solopreneurs who apparently don’t have enough expenses/receipts to claim as tax deduction. Well, we don’t need to be a CPA to know what the BIR thinks about that.

But are expenses that low, that one has to resort to scrambling for receipts? Or maybe home-based businesses have been ignoring what I call the “what-if” expenses for tax deductions?

What-if expenses refer to those you have to separately pay for, assuming there’s a workplace away from home. If you do, think about the rent, utilities, internet, pantry & office supplies, separate computer, etc. Yes you “save” via luxury of working from home, but are you not already paying for these? If you’re not working from home, maybe a slower/cheaper broadband plan is good enough? How about the family printer that without it, you’d have to buy one yourself? Or is it possible you could settle for a smaller house (cheaper rent) if you don’t need the office room? All these extra costs are business expenses, too.

So how do we report these what-if expenses as tax deductions. There are two. First is to identify and calculate your what-if costs. For example, triathlon coach JCruz’s (Juan de la Cruz) family moved to a more expensive place near BGC, for him to be closer with potential clients. The “difference” as supposed to staying elsewhere is sort of JCruz’s office rent won’t you agree? There’s one business expense right there! The second step is to provide valid documentation. So the easiest way here is make sure the lease agreement (and monthly receipts) is under his name (but of course claim only the “difference” as tax deductions, NOT the entire rent).

But Step Two is not that simple as it can be a hassle to have to track and account for all expenses. Good news is there’s an easier alternative, the Optional Standard Deduction (OSD), which we’ll cover in our next blog.

 

Stay tuned !

 

Should my business pay VAT?

Should my business pay VAT? A guide for Filipino small business owners

By | Tax Rules, Tax Savings | One Comment
Should-my-business-pay-VAT

Should my business pay VAT?

Is your business VAT registered? Maybe it’s time to change that. 

There’s been this clamor for years to have the income tax table indexed to inflation. The last time it happened? Never. It was never adjusted for inflation since the revised tax code took effect more than 20 years ago. But finally, people’s spirits have been lifted, with President Duterte mentioning lower income tax rates to come in his first SONA.

Speaking of inflation, there is one item that currently IS indexed to inflation, and has a huge impact not just on the taxes to be paid but also on the complexity of the accounting required: the annual revenue threshold that determines if one has to pay the 3% percentage tax, or the 12% VAT.

Most VAT taxpayers are not aware this threshold is adjusted (upwards) regularly. What would be a P1,500,000 annual threshold back in 2006 is now at P1,919,500, so some VAT taxpayers may now fall below this threshold and can slide down.

[EDIT: RA 10963 or the Tax Reform for Acceleration and Inclusion has increased the VAT threshold to P3,000,000.]

But what about the ability to apply input VAT and offset against output VAT? Is there a similar mechanism under percentage tax? The answer is no. But for most businesses and self-employed professionals, 3% would certainly be better, since the only scenario where VAT system would be preferred is when:

a) The margin in the business is really low.

b) The taxpayer has VAT invoices/receipts for ALL expenses.

Let’s put these into numbers. Say VAT taxpayer has an annual revenue of P1.5 million (excluding VAT) and P1.0 million in expenses (excluding VAT). The output VAT would be: P180,000 (P1.5M x 12%) and input VAT would be P120,000 (P1.0M x 12%) bringing NET VAT to P60,000.

But according to the BIR gov ph’s percentage tax rule. it’s a simple and lower P45,000 (P1.5M x 3%). A P15,000 difference! And that assumes all expenses were paid to VAT-registered suppliers/establishments, which is rarely the case. So if only P800k of expenses are from VAT suppliers, and input VAT is P96,000, and you’re looking a tax bill of P84,000 (P180,000 less P96,000).

And don’t get me started with all the bookkeeping stuff that goes away when one moves away from VAT. Because VAT taxpayers know what I’m referring to.

So what say you? Are you VAT-registered and perhaps now below the threshold? Say hello to percentage tax?

If you’ve decided to move away from VAT, here’s a guide on how to change your tax type to non-VAT: Tax Reform: Changing from VAT to Non-VAT

Looking for a better and more convenient way to file and pay for your small business’s taxes?