Published: March 25, 2021 | Updated: March 27, 2021 | Posted by: Moneymax | Personal Finance
It’s the tax season once again. For freelancers and entrepreneurs, this means getting yourself busy because you’re filing an income tax return (BIR Form 1701) and paying taxes all by yourself. The work would be easier if you can afford to hire an accountant or tax agent. But what if you can’t?
Tax preparation and filing in the Philippines can be very confusing for beginners and even for those who have been doing it for years. If it’s any consolation, filing ITRs nowadays is a lot easier than it was before. The forms have been reduced from 12 to four pages. Also, the Bureau of Internal Revenue (BIR) has introduced online methods for preparing and filing ITRs. Lastly, tax payments can be conveniently made through ATMs and online banking channels.
No experience yet in filing an income tax return as a self-employed individual? This comprehensive guide should give you a head start.
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Not everyone is required by law to pay taxes. Under the Tax Reform for Acceleration and Inclusion (TRAIN) law, Filipinos earning less than PHP 250,000 per year (or roughly less than PHP 21,000 per month) are exempted from paying income tax.
However, tax-exempt Filipinos still need to file an income tax return.
If your annual income is over PHP 250,000, your earnings as a self-employed individual will be taxed under the new tax rate that corresponds to your annual income bracket.
You may be wondering why freelance workers and entrepreneurs are being taxed. After all, you might have already worked as a freelancer or sold items online in the past without having to deal with this. So, before we proceed to the next topic, let’s clear this confusion first.
While the words “freelancer” or “entrepreneurs” are not exactly found in the BIR’s lexicon, the bureau has a category called “self-employed individuals.” People under this category receive income from the conduct of trade, business, practice, or profession.
So whether you’re doing independent work as a writer, web designer, computer programmer, photographer, doctor, dentist, lawyer, actor, athlete, or online seller, you’re mandated by the law to pay taxes.
Are you already registered by the BIR as a self-employed individual? You won’t be able to pay taxes and file an income tax return without your Certificate of Registration (CoR), which you’ll get once you complete the BIR registration process.
Here’s what you need to accomplish, so you’ll be able to file an income tax return:
Here’s what you need to accomplish, so you’ll be able to file an income tax return:
Related article: How to Get a TIN ID in the Philippines: A Complete Guide
An income tax return (ITR) is a form that taxpayers file with the BIR to report their income, expenses, and other important information such as tax liability and any refund for excess payment of taxes. For individuals who have mixed-income or are self-employed, the ITR Form that you will need to accomplish is BIR Form 1701.
The deadline for filing income tax returns in the Philippines for freelancers and self-employed individuals is April 15 every year. Failure to meet the deadline will result in penalties such as a 25% surcharge of the tax due and a 20% interest per year from the deadline of payment until full payment of the amount.
It’s much better if you file yours earlier to avoid missing the deadline and to have time to correct any tax miscalculation.
There are three methods to file an income tax return in the Philippines: through the Electronic Filing and Payment System (eFPS), Electronic BIR Forms (eBIRForms), and manual filing.
Developed by the BIR, the eFPS is a paperless system for paperless filing of ITRs and paying taxes through the internet. It’s a quick, convenient, and secure way to file and pay your taxes.
The BIR built this electronic tax filing and payment system mainly for the largest taxpayers in the Philippines. But presently, all taxpayers in the country who need to file and pay their taxes are allowed to use the eFPS.
The eBIRForms is an alternative method that makes ITR preparation and filing easier, more convenient, and more accurate. It consists of two packages that enable taxpayers to fill out their ITRs offline and submit it to the BIR online:
Non-eFPS filers may use this method. The government mandates certain taxpayers such as accredited tax agents and their clients to use the eBIRForms.
Unlike the two other methods of preparing and filing an income tax return in the Philippines, manual filing involves filing your ITR personally in the RDO where you’re currently registered.
Taxpayers who are exempted from electronic filing of tax returns such as senior citizens and persons with disabilities (PWDs), as well as those who can’t use the eFPS and eBIRForms due to technical error or system maintenance, can file and pay their taxes manually.
Lost or forgot to keep a copy of your income tax return? Here are the different ways you can try to retrieve your ITR.
To keep track of your finances as a freelancer or an entrepreneur, you need to compile all the important documents, especially those that concern taxation. If you’re looking to get a copy of your ITR and other BIR-related documents, you may try sending a request to the Bureau via email@example.com.
You may also get in touch with the agency’s Customer Assistance Division via the following numbers:
Alternatively, you can use your eFPS account to see the tax returns you filed in the past. Just log into your account, go to the eFPS User Menu, and click the Tax Return Inquiry button.
You may also get a copy of your ITR in the Philippines through the Freedom of Information website. The Freedom of Information or FOI Program is the government’s response to the citizens’ call for transparency. Through this program, you can request any information about government transactions and operations as long as the information will not endanger national security.
The FOI program informs users that everything you input into its platform—which includes your name and message—will be publicly displayed on the website.
The agency also asks requesters to make sure that the information being asked for is not already publicly available. It also asks users to be very concise on their requests, so the release of information will be much quicker.
Here are two useful tips from the agency:
If you’re freelancing for an employer that takes care of your taxes and deductions, then there’s nothing to worry about. However, not all freelancers enjoy the same convenience, and they need to do everything themselves.
Avoid missed deadlines and penalties. Here are some of the things you may need to keep in mind:
Efficient financial organization starts with the creation of a separate account for your freelance work or business. That way, it’ll be much easier for you to track your operation-related spending and tax-related deductions.
Better yet, create a specific bank account that’s dedicated to your taxes. While your overall tax largely depends on how much you’re making, it wouldn’t hurt to start saving as early as now. That way, you won’t be shocked by how much you’ll need to pay eventually.
To keep tabs on your taxes and payments, we recommend that you have a record-keeping system. It can be as simple as an Excel file or a columnar book. Using tech platforms, such as Taxumo and Tax Whiz PH will surely make this work much more efficient.
Related article: BIR Online Payment Guide: Easy Ways to Pay Taxes in the Philippines
If you’re a super freelancer who’s handling multiple projects and earning a sizeable income, managing your taxes can be a headache. But that won’t be the case when you work with an accountant. Not only will they help you keep track of your finances, but they’ll also explain to you the confusing parts of taxation.
To better calculate your taxes, you’ll have to refer to your invoices and receipts. As such, you need to keep copies of them.
Don’t wait for the BIR’s deadline before you actually file your ITR. The last days of the filing season can be hectic and stressful, and you may even find yourself wasting some time as you wait in line. Prepare all the pertinent documents ahead of time, so you’ll have a chance to correct the details and make sure that everything is updated.
Does the thought of filing your ITR and paying your taxes seem daunting? It really is, so you need all the help to get it done and have more time to attend to your business or freelance gig. You may try using apps that can automate some of the tasks involved in tax preparation and filing, like calculating taxes and filling out forms.
With a goal to help Filipinos lead healthier financial lives, Moneymax regularly publishes tips and tricks on personal finance and lifestyle, among many other topics. For more finance-related news and articles, follow Moneymax on Linkedin.