Because of the increasing numbers of Filipinos in Siargao working as self-employed and/or opening up their own business for the first time, more and more questions are raised about income tax return. Most don’t have the slightest idea on how to file and what the forms are for. So to keep it simple and understandable, we’ve laid out some of the frequently asked questions on income tax return in the Philippines.
What exactly is income tax return?
Income tax refers to quarterly and annual taxes levied by the government on individuals and corporations on its business income. The technical definition of tax return is the tax form or forms used to file income taxes with the Bureau of Internal Revenue (BIR). Tax returns often are set up in a worksheet format, where the revenue, cost of sales/services, and deductions are written to calculate the tax liability of the individual or corporation.
When do you need to file for the ITR?
For businesses with a Calendar year end, deadline for the filing of income tax is on or before the 15th of April every year. Failure to submit your ITR on or before the deadline will cost you fines and penalties. You also should file quarterly income tax which is due 60 days after the end of the quarter. This will lessen your burden at the end of the year since you can apply the income tax payments from previous quarters on your year-end income tax payable.
Who are required to file for ITR?
If you belong to this list then you need to file for ITR:
· Employed by two or more employers
· Self-employed (professional or entrepreneur)
· Corporations
· Foundations
How do I compute for the income tax of my Corporation?
For corporations, they are either subject to higher of Regular Corporate Income Tax (RCIT) or Minimum Corporate Income Tax (MCIT), if the corporation is operating for over 3 years. RCIT is computed as follows:
Revenue
Less: Cost of Services/Sales
Total Gross Income
Less: Deduction (Optional Standard Deduction OR Itemized Deduction)
Equals: Taxable Income
Tax Rate (except MCIT Rate)
Equals: Normal Income Tax
> Revenue are Sales, Receipts, Fees and other non-operating taxable income.
> Cost of Services/Sales are purchases or expenditures directly incurred to generate sales or revenue
> A corporation shall choose either the itemized or optional standard deduction. The choice made in the return is irrevocable for the taxable year for which the return is made, which means that if a Corporation chooses OSD in the 1st quarter, it will use OSD for the rest of the quarters, including the year-end income tax return)
Optional Standard Deduction (OSD) is a deduction equivalent to 40% of the gross income, that is deducted to the gross income to come up with the taxable income. However, a corporation who availed and claimed this deduction is still required to submit its financial statements when it files its annual tax return and to keep such records pertaining to its gross income.
Itemized Deduction are ordinary and necessary trade and business expenses paid or incurred during the taxable year in carrying on or which are directly attributable to the development, management, operation and/or conduct of the trade and business. Itemized deduction may include rent, administrative salaries, professional fees, interest, taxes, losses, bad debts, depreciation, depletion, charitable and other contributions, research and development and pension trust. The list of valid deductions are in the ITR form 1702.
For MCIT, it is imposed when a corporation has zero or negative taxable income or whenever the amount of minimum-corporate income tax is greater than RCIT. MCIT is computed at 2% of the gross income of the corporation at the end of the year. “Gross income” means gross sales less sales returns, discounts and cost of goods sold.
Income tax is the higher between MCIT and RCIT.
If you are not confident on how to compute for your income tax, it would be best to consult Siargao Accountant.
What are needed to file for an ITR?
Aside from the Income Tax Return (Form 1701 for individuals and 1702 for corporations), Financial statements must be attached to your ITR upon submission. If you don’t have any idea on how to do your financial statement, it would be best to consult Siargao Accountant. In addition to the ITR and Financial Statements, you need to prepare a Statement of Management Responsibility (SMR) for both Bureau of Internal Revenue (BIR) and Securities and Exchange Commission (SEC) (if it is a corporation), stating that the management is ultimately responsible for the financial statements.
Is an auditor needed to audit my financial statements and sign an audit opinion for my financial statements?
It depends upon your earnings. If your gross quarterly revenue is over P150,000 for any given quarter, or annual income above P600,000 then yes, you need a Certified Public Accountant accredited by the Board of Accountancy (BOA).
Can I just ask any accountant to audit and sign the audit report?
NO. It should be signed by a Certified Public Accountant accredited by the Board of Accountancy. Take note that not ALL CPAs can do the audit and sign the audit report on the financial statements. A certified public accountant should be accredited by Board of Accountancy (BOA) and Bureau of Internal Revenue (BIR) for him/her to sign the audit report. In certain cases, he/she should also be accredited by the Securities and Exchange Commission (SEC) and Banko Sentral ng Pilipinas (BSP). If the audited financial statements is signed by a non-accredited CPA, the taxpayer will be penalized and the CPA may be reprimanded, or worst, licensed could be revoked.
How will I know if my accountant is accredited?
First of all, you need to make sure that he/she is a Certified Public Accountant. You may ask for his/her professional or PRC ID and check whether it is still valid. Next, make sure that he/she is accredited by the Board of Accountancy. You make check the list of accredited CPAs thru the following link:
https://boa.com.ph/wp-content/uploads/2018/02/masterlist-CPA-Firms_Jan-31-2018-for-posting.pdf
Balagot & Co. is accredited by Board of Accountancy, with accreditation number 8001, valid until March 2020. Its partners, Jonathan Balagot (no. 4920) and Al Balagot (No. 7470) are also accredited by BOA.
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