With only less than six months ’till tax season in April, it is imperative that you or your business start the necessary preparations for filing tax returns. Now is the perfect time to catch up on backlog accounting records and keep up on your financial statements.
To guide you in the process, here are the 10 mistakes that you should be wary not to commit while preparing for and filing your income tax returns. This will help you avoid potential BIR problems and solutions.
1. Lacking Financial Data
Having incomplete data is a fatal tax return prep and filling mistake. The filling of your tax returns may easily be turned on its head when you or your company are lacking data on certain transactions. Having incomplete data will result in discrepancies between the assets and liabilities you have in real-time compared to what is written in the books. Thus, pay attention to your bookkeeping and accounting practices all year round and not just when the deadline is near.
2. Incomplete Information or Wrong information of ITR forms
Though a common mistake, forgetting to note down certain information, or inputting the wrong info entirely, is an error that, though fixable, will cost you your effort and time. To combat this, make sure that you allow a reasonable amount of time to fill out the form. Do not rush through the requirements and double-check all the information you have laid out. Ensure that you have correctly written down vital pieces of information like your TIN, Name, Business Name, Registered Address, RDO, etc.
3. Wrong Calculations
Wrong miscalculations on the ITR can result in you or your business having to be audited by the BIR. Additionally, submitting a miscalculation can result in the incurring of penalties and fees. To avoid finding yourself in this situation, make sure to always check, audit, and review the work and calculations of your accountant. Go through the BIR forms and tax returns a million times if you must.
4. Failing to Reconcile with Other Tax Declarations
Auditors will reconcile your tax returns with payments of others like revenues declared on VAT, etc. They may also look at your certificate of withholding tax to your income tax return. So always ensure that the figures you have noted down on your tax returns are reconciled to the amounts declared on other tax returns.
5. Incomplete Attachments
Do not forget to attach the necessary documents when claiming tax credits. Make sure to have the corresponding certificates, documents, or other proof that will vouch for your eligibility to claim Tax Credits.
6. Claiming Over and Beyond Allowable Deductions
When claiming allowable deductions, you and your accountant must observe prudence and be sure not to go overboard. Some expenses have a limitation. Note that your personal expenses are NOT tax-deductible.
7. Failing to Declare Other Income
All income earned or generated outside of your registered line of business or work should also be stated and declared in your tax return. Such includes income earned from dividends, gains, and other income. Note that to varying degrees, and depending on the amounts, other income may still be taxed; so, failure to declare such may raise the BIR red flag for your company putting you up for an RDO audit and investigation.
8. Using the Wrong Forms
All tax forms are subject to revisions and even additions. Therefore, make sure to be updated on any of the changes in forms to ensure you do not fill up the wrong one and waste time trying to rectify this mistake.
9. Poor Deadline Management
Poor management of time and the failure to meet deadlines will not only cost you stiff penalties and late fees but will also taint the credibility of your or your company. Therefore, it is advised to file your taxes weeks before the final deadline to allow for extra adjustments or technical difficulties that may occur.
10. Filing in Bad Faith
When filing your tax returns and affixing your signature to them, you are declaring that all information presented is true and made in good faith. Thus, any information that is found by the BIR to be intentionally manipulated, overstated, or understated for personal gain can land you during a legal battle, or worse, cost you your company.
To avoid receiving a love letter from the BIR for audit and investigation, seek help from a reputable CPA firm. Give our team a call and we will help review your returns to ensure you comply with BIR requirements and pay the correct tax dues. Call us for a free 30-minute consultation. Don’t wait until it’s too late because the clock is ticking!