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5 Bookkeeping Tips for Those who are Self-Employed

5 Bookkeeping Tips for Those who are Self-Employed

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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!

Genesis Reonico of Online Jobs University

Taxumo Heroes: Genesis Shares His Winning Advantage to Filipino Freelancers

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Genesis Reonico of Online Jobs University

For Filipino freelancers, taking the leap from their corporate jobs into the wild world of online freelancing can be a daunting start to a rewarding career.

Luckily, it’s not as scary as it used to be. Many freelancers will not face the same problems that those who started years back had encountered, thanks to the web-based freelance mentoring platform Online Jobs University.

Below, we get to know more about Genesis, the founder of Online Job University, and his precious advice for Filipino freelancers, and just about everybody who wants to pursue their passion and make a difference:

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Taxumo Hero Raffy Vicente

Taxumo Heroes: Why Paying His Income Tax Won’t Stop Raffy from Pursuing His Passion 

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Taxumo Hero Raffy Vicente

It wasn’t always living a life he truly wanted for himself.

Before Raffy Vicente set out to build his own consultancy firm, he was working full-time as an employee for almost a decade.

He yearned for something more fulfilling, career-wise: a level-up of some sort. That was the time he decided that it was time for a change.

But while it was the desire for freedom that had made him leave, it was ultimately his burning passion and relentless drive that eventually built and grew his company, RV Marketing Services.

Below, Raffy recounts his rewarding journey from leaving the corporate world to joining the growing pool of successful entrepreneurs who continue to defy their comfort zones, in the name of following and living out their passions: 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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President Trump and the Philippine BPO Industry

How President Trump May Hurt (or Help) the Philippine BPO Industry

By | BPO, Economy | No Comments

President Trump and the Philippine BPO Industry

There have been various news coverage on the election of Donald Trump, and how Trump’s “America First” policies could negatively impact our country’s thriving business process outsourcing or BPO industry. Many are concerned of possible US legislation that could discourage companies from further outsourcing. Or that they’ll make offshore services more expensive through some form of “border tax”. Analysts estimates well over 50% of BPO revenues emanating from the US or US companies. And some industry stakeholders, especially BPO employees, are frankly scared.

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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.