Running a business, no matter how small, means dancing with taxes. As the famous adage goes: No one can escape from death and taxes. This is an obligation of every Filipino who earns income, including business owners. Even if you’re a small one-person show, like a sole proprietorship, you can’t escape the taxman’s grasp. Your business’s expenses, income, assets, and liabilities are all funneled through your individual income tax return (ITR). It’s a tangled web where the owner’s tax ID and the business’s tax ID merge into one or serve as one and the same.
The same holds true for professionals, freelancers, self-employed individuals, and online business owners. If you fall into any of these categories, just make sure to register your business, allowing you to issue those oh-so-important invoices and receipts. Keep every expense receipt on-hand, keeping up with your accounting and bookkeeping, to determine your business’s true net income with ease. This income will be the basis of how much taxes you need to pay, so it’s not something you can be flippant about.
Again, paying taxes isn’t optional; it’s a necessity. As a business owner, you’ll find yourself doing the tax tango either monthly, quarterly, or annually. The details may depend on your business’s nature and structure which you registered with the BIR. Taxes are your ticket to the government’s good graces and continued operations. If you fail to comply, penalties and criminal offenses may come knocking at your door. You may also have to face a complicated BIR audit and investigation that will surely eat away your profits and make you feel stressed out. Need a tax filing lifeline? Check out these simple guidelines and details to help you navigate the labyrinth of tax filing.
Percentage Tax: Monthly and Quarterly
Percentage tax targets individuals, entities, or transactions that:
- Sell or lease goods, properties, or services in the course of business but are exempt from VAT under section 109 of the NIRC (National Internal Revenue Code).
- Have annual gross sales/receipts below 1,919,500 pesos and aren’t VAT registered.
- Belong to BIR-identified industries.
Monthly Percentage Tax (BIR Form 2551M)
File this within 20 days of each month’s end. The monthly percentage tax computes as a 3% sales tax on your monthly gross sales.
Documents needed are the following:
- If applicable, a duly issued creditable tax certificate.
- If applicable, a duly approved tax debit memo.
- Proof of payment and previously-filled return for amended returns.
- An authorization letter if filed by an authorized representative.
Quarterly Percentage Tax (BIR Form 2551Q)
File this within 20 days after each taxable quarter’s end. The quarterly percentage tax covers the income earned during a specific quarter, totaling three months.
Documents needed are the following:
- If applicable, a duly issued creditable tax certificate.
- If applicable, a duly approved tax debit memo.
- Proof of payment and previously-filled return for amended returns.
- An authorization letter if filed by an authorized representative.
Income Tax: Annually and Quarterly
Quarterly Income Tax (BIR Form 1701Q)
Your individual income tax, which ranges from 5% to 32%, applies to the income derived from your business. Pay this tax quarterly. However, if you plan to incorporate, you’ll be subject to the fixed corporate income tax of 30%. File this tax on or before the 60th day after each quarter’s end.
Annual Income Tax (BIR Form 1701)
Based on your net income from the previous year, the annual income tax is due every April 15th. Make it a point to beat the deadline to avoid paying surcharges.
Withholding Taxes (BIR Form 1601C/BIR Form 1601E)
If you have employees who earn a paycheck from working for you, withholding taxes apply. It also covers third-party contractors and rent payments.
Forms used for paying withholding taxes are the following:
- Monthly Remittance Return of Income Taxes Withheld on Compensation (BIR Form 1601C).
- Expanded Monthly Remittance Return of Income Taxes Withheld (BIR Form 1601E).
Regardless of the form used, the deadline is on or before the 10th day of the following month. Seeking help from payroll services would help you keep track of these details. Moreover, don’t forget to renew your licenses and permits by January 20th each year. If you don’t have time for that, an accounting firm offering business registration services can help.
Penalties and Fees
- A 25% surcharge awaits if you fail to file or pay your taxes on time.
- Double that surcharge to 50% if you intentionally cook up false returns.
- Expect a 20% annual interest rate on any unpaid taxes until fully paid.
- And let’s not forget the compromise penalty.
These are just a taste of the tax landscape, not an exhaustive menu. Depending on your business structure and industry, you may have to pay more taxes or other fees. Plus, local community taxes might join the party, depending on your business address and nature of business. Feeling lost in this maze of details? Don’t hesitate to reach out to our team of Certified Public Accountants (CPAs). They’ll be your guiding light in the tax jungle.
