So you’ve started your small business, you got the business name locked down, you got your branding on-point, what’s next? The next best step is to make your side hustle legit! This opens the doors for better opportunities with clients and access to government services designed to help freelancers.
So how should you go about it? We listed down a list that would be of great help to you!
- Register with the Bureau of Internal Revenue (BIR) – Freelancers and “raketeros” need to register with the BIR and secure a Tax Identification Number (TIN). They need to file their registration with the Revenue District Office (RDO) where they are located
- File and Pay the Quarterly Percentage Tax – Freelancers and “raketeros” are required to pay the Quarterly Percentage Tax (QPT), which is based on their gross income. The QPT is filed and paid every quarter and is due on or before the 25th day of the month following the end of the quarter. The QPT is currently set at 3% of the gross income, and those who earn below the threshold may be exempted from the tax
- File and Pay Income Tax – Self-employed individuals who earn beyond the tax exemption limit are also required to file and pay their annual income tax returns (ITRs). The deadline for filing and payment of the ITR is on or before April 15th of the following year
- Keep Accurate Books of Accounts – Freelancers and “raketeros” are required to keep accurate books of accounts, including receipts, invoices, and other financial records. These records will be used to compute their tax liabilities
- Comply with Other Tax Obligations – Aside from the QPT and the annual ITR, freelancers and “raketeros” may also have other tax obligations depending on their line of work. For example, those who engage in import and export activities need to comply with customs and import duties
You may be left to wonder, what if you just totally skip all these and ignore your tax obligations. Here are some scenarios to keep in mind in line with failure to meet your tax obligations;
- Legal Consequences – Non-compliance with tax obligations can lead to legal consequences, including fines, penalties, and imprisonment. The BIR has the power to investigate and penalize those who fail to comply with tax obligations
- Limited Access to Government Services – Proper tax filing is a requirement for availing government services, such as social security benefits, loans, and other government programs. Failure to comply with tax obligations can limit a freelancer or “raketero’s” access to these services
- Difficulty in Applying for Loans or Credit – Banks and lending institutions require proof of income and tax compliance before approving loan applications. Improper tax filing can make it difficult for freelancers and “raketeros” to secure loans or credit
- Risk of Business Closure – For freelancers and “raketeros” who run their own businesses, non-compliance with tax obligations can lead to the closure of their business. The BIR has the power to close businesses that fail to comply with tax regulations.
- Damage to Reputation – Non-compliance with tax obligations can damage a freelancer or “raketero’s” reputation. Clients and potential customers may view non-compliance with tax obligations as a sign of unprofessionalism and may be hesitant to do business with them.