7 Tips on How to Avoid the Stress of Tax Season in the Philippines
A recent survey of 600 small businesses revealed that taxes are their number one challenge. Tax preparation can be very time-consuming, averaging 181 hours to file a return in the Philippines. That is a significant opportunity cost for small business owners. Furthermore, a recent Quickbooks survey found that 85% of entrepreneurs overpay their taxes. Luckily, there are some strategies to make tax preparation less costly and time-consuming.
Tip #1: Don’t Wait Until Tax Season
One of the keys to reducing stress is to look at taxes like any other business task — a process that needs attention year-round. Creating good habits, such a regularly filing receipts, can ensure your preparation goes smoothly come tax season. Beyond just stress, procrastination can result in steep late fees. In the Philippines, the penalty for late filing is a 25% surcharge of the total income tax due. A 12% interest rate per annum also applies to latecomers.
Tip #2: Keep Up With Receipts
Keeping a close eye on receipts can ensure you maximize deductions and avoid paying tax on income you haven’t actually earned. However, itemizing every payment can be nearly impossible, especially when relying on paper receipts. Apps such as Shoebox and Receiptmate can capture financial data in real-time using your smartphone. There’s no need to save every receipt or enter the details of each transaction manually. Important financial information, such as date, vendor, and amount, can be scanned with your phone’s camera, and then automatically uploaded to the app. Some programs even track which expenses are tax-deductible.
Tip #3: Use Accounting Software
Accounting software makes it easier to track finances accurately and efficiently. Documents such as bills and receipts can be uploaded and stored, so you have a ready-made archive come tax time. All the data is organized and searchable. Many programs can also calculate tax withholdings for employees. Some programs, such as Quickbooks, offer a free 30-day trial.
Tip #4: Use Online Banking
If you’re not ready to invest in accounting apps and software, online banking is a free option that can help order your business transactions. Most banks let you download your state of account (SOA). Use this to itemize transactions each month, and by tax time, you’ll have a comprehensive list of expenses.
Tip #5: File Taxes Online
The BIR has created an Electronic Filing and Payment System (eFPS). You can file and pay your taxes online at their website. They offer free tax preparation software. The software allows taxpayers to enter data, validate, edit, save, print, and submit their tax returns. It is important to file before the April 15 deadline if you’re submitting your return online. The flood of last-minute filers can sometimes overwhelm the system, leading to disruptions of service.
There are other independent software packages available, which offer a more user-friendly platform and are compatible with the BIR system. With JuanTax, users can upload documents and encode their financial information throughout the year. It is also certified by the BIR’s Electronic Tax Software Provider Certification (eTSPCert) System. Before purchasing any tax return software, check that it has the eTSPCert accreditation.
Tip #6: File at the Correct Venue
If filing in person, it is crucial to go to the Revenue District Office (RDO) where your business is registered. Failure to do so will result in a 25% surcharge on income tax, along with a ₱1000 penalty. This also applies to companies mandated to file their taxes online, who instead file manually. Double-check where you are registered before filing with an RDO or an Authorized Agent Bank (AAB).
Tip #7: Hire an Accountant
An accountant can set you up for lower taxes before you even launch your business. Whether a sole proprietorship, partnership or corporation, there are tax ramifications for each business entity. Choosing the right structure is critical to reducing your bill during tax season.
A recent survey by Quickbooks reported that only 15% of small business owners claim all their tax deductions. A professional can assist with tax planning throughout the year, helping you capitalize on every deduction as well as avoid unexpected fees or penalties.
Even if you’ve managed your tax returns in the past, recent changes to the Philippine tax code may warrant a professional consultation. The recently enacted Comprehensive Tax Reform Program included some major modifications such as:
- Non-taxable annual income raised from ₱50,000 to ₱250,000;
- Income tax rate lowered to 8% for sole-proprietorships; and
- Corporate income tax will be reduced by 2% per annum until a 20% tax rate is achieved.
An accountant can walk you through all the changes and ensure your business is compliant and availing of the correct rate.
Make Tax Season Easier Next Year
Over 40% of small businesses struggle with taxes each year. Making tax preparation a year-round habit can reduce the stress (and potential penalties) of filing last-minute. Even an honest mistake can lead to a higher tax bill. Accounting apps and tax-preparation software can reduce errors and save time. A professional accountant can ensure you’re compliant with BIR, using the correct forms and tax rate. They can also save you money, through their knowledge of deductions and incentives.