It’s that time of the year again when we all have to pay our Annual Income Tax Return, popularly known as ITR. And with this, I see a lot of posts online asking how to I file an Income Tax Return or ITR and where should one start.
So, let me give you at least some information, based on what I know and how I do it. Again, I am not an accountant, but having Taxumo as a business have made me understand how taxation in the Philippines work for MSMEs, self-employed individuals and PRC licensed/non-licensed professionals.
Who needs to prepare their ITR by themselves?
Most of us are employees of a local company that are registered with the BIR. The company that we work for withholds a certain amount that they pay to the BIR (on our behalf). This is called substituted filing. And as proof of that, employees get a form 2316 around Jan to Feb (start of the year) so that you can use this when you apply for VISA, get loans, etc.
So for employees, MAKE SURE you get a 2316 form and KEEP IT! That form is very important.
Now for employees who have side businesses or freelancing / professional services that they do on the side? How do I file an Income Tax Return?
Friend, you are called a Mixed Income Individual. This means that you earn from being an employee and from your business or profession. So what you need to do is to file a Form 1701 (Annual Income Tax Return Form). Let’s talk about how to file it later on in this article. To file a 1701 for mixed income individuals though, you will have to have your 2316 by your side. And if some of your clients also gave you 2307 forms, you have to have them, too.
How about for full time freelancers, professionals and sole proprietors, what do we file?
Now listen up! You can either use 1701 or the newest form to the ITR family, which is 1701A. Now when do you know which of the two you will have to file?
- Form 1701 – Please use this form if 1) you are a mixed income individual, meaning you are an employee AND also earning income from a business or side profession (ex. consultancy work, freelance writer, etc.) or 2) if you’ve chosen Graduated Tax rate with an Itemized Deduction Method
- Form 1701A – Please use this form if you are earning purely business income or income from your profession. This is a new form released by the BIR for those who chose the Optional Standard Deduction Method (OSD) or opted in for 8% GRT in the previous year
I’m ready to file my ITR. I know what form I should fill out. What do I do?
First thing that I did was I created an account in Taxumo. Just follow these screenshots:
Once you’re done setting up your user account and company information, the next step is to feed Taxumo with information. Note that the system COMPUTES for your taxes, so you don’t have to manually compute or compute using a spreadsheet.
So, there are two scenarios when we get to entering Revenue and Expenses in Taxumo. Scenario one is that you’ve never filed anything before (even manually). This is your first time. And scenario two is that you’ve actually filed manually before and you want to try using Taxumo this time around.
Perfect! I will guide you for both instances.
Scenario one’s cash flow entry is basically adding your revenue and expense entries into Taxumo. Click on your CASH FLOW tab and add entries one by one. Things to note:
- For revenue that you key in, it has to pair up with an OR that you have written for a client
- For expenses, enter expenses that are related to your business. It has to pair up with an official receipt (it’s usually indicated in the receipt).
- Taxumo has standard and suggested categories already in the system. If you’d like to add a few categories, it’s best to consult with an accountant to know if it’s a direct or indirect expense. You can book a consultation here: https://www.taxumo.com/taxumo-consult/
Scenario two’s cash flow is basically adding your revenue and expenses for the 4th Quarter of 2019 (or applicable year for your ITR) — October, November and December. This is because we assume that you have your 1701Q-Q3 (3rd Quarter Income Tax Return) with you. Just keep it by your side when you file.
I totally forgot Scenario three. Scenario 3 is basically when you have used Taxumo and have filed at least your 3rd Quarter 1701Q with us and have consistently been logging revenue and expenses for 4th quarter. You have nothing to worry since all fields will be filled out (assuming you are not a mixed income individual where you need to have your 2316 form by your side).
So I have encoded all of my revenue and expenses in Taxumo. Do I need to encode anything else?
If you have 2307s, please take a picture of each of the 2307 form and go to the WITHHELD TAXES tab. Encode and copy each one under the RECEIVED tab.
If you are a withholding agent and need to pay withholding taxes (0619E,1601EQ and 1604E), be sure that you have done and paid all of these already.
Hmmm, that’s about it.
I have done all that. Am I ready to file my Annual Income Tax Return now?
Yes, you are! You have done all the prep work. All you need to do is to watch these videos and follow it. If this is the first time you are using Taxumo, be sure that you have your past filings of 1701Q beside you. If you are a mixed income individual, have your 2316 with you while filing your ITR in Taxumo.
Visit this link, watch and follow the videos:
Oh, this sounds easy! Aside from the actual tax dues that I will need to pay, how much is processing in Taxumo?
Taxumo has 3 subscription plans to choose from and the plans are based on the tax forms that you need to file. To know the forms that you need to file, check your Certificate of Registration and look at Tax Types. You’ll normally see the following for a self-employed individual:
- Percentage (Non-VAT taxpayers) / Value Added Tax (VAT taxpayers)
- Registration fee (this is the yearly BIR fee that you need to pay every January)
- Income Tax (this is paid by everyone)
- Withholding Taxes – EXP/OTH (This means you are a Withholding Tax Agent and you need to withhold taxes for each payment that you make)
Okay, on to the plans, you can check out Taxumo’s plans here: https://www.taxumo.com/taxumo-pricing/
The cheapest is Php 700 per month (if you get the annual fee). It’s Php 888 if you get the monthly fee. This is for those who opted to pay the 8% flat income tax rate (so they need to file forms 1701Q, 1701A and usually the registration fee or 0605). Taxumo’s pricing already includes filing form 1701A and all of these mentioned forms. You SAWT or 1701Q/1701A attachments are also submitted to the BIR! No need to be penalized for missed submissions of attachments.
The next plan is at Php 1500 per month (if you get the annual fee). It’s Php 1888 if you get the monthly fee. In this plan, the forms Percentage tax (2551Q), Income Tax Forms (1701Q, 1701, 1701A), Withholding Tax (0619E, 1601E, 1604E), Registration Fee (0605) and submission of attachments QAP and SAWT are also included.
The last plan is at Php 2300 per month(if you get the annual fee). It’s Php 2888 if you get the monthly fee. This is what VAT taxpayers usually need since in this plan, the forms Percentage tax (2551Q), VAT forms (2550M and 2550Q), Income Tax Forms (1701Q, 1701, 1701A), Withholding Tax (0619E, 1601E, 1604E), Registration Fee (0605) and submission of attachments QAP, SAWT and SLSP are also included.
*Note that for all plans, Taxumo gives you additional 2 delegate access and access to your Books of Accounts view.
A lot of people are asking if they can just avail of Annual ITR (1701 and 1701A). Yes, you can!
Here are the rates:
1701A 8% at ₱ 888.00 1701A Graduated (Optional Standard Deduction) at ₱ 1,888.00 1701 at ₱ 1,888.00
Usually, the deadline is on April 15, but it was extended for this year due to COVID 19. BIR deadline is May 15,2020. Taxumo’s deadline is May 10, 2020.
Always file early, peeps, and #TaxItEasy!
If I missed anything that you’d like to ask, please feel free to comment on the comment section below. Also, check out the videos of Taxumo in their YouTube channel: https://www.youtube.com/c/taxumo
What form shoulnI use if mixed income—compensation and rental 8% option?
I you are mixed income, the form to use is 1701 🙂