Best Tax Tips for Freelancers in the Philippines

How should Freelancers handle their taxes? Some freelancers don't seem to find any importance about filing their taxes. Most of them forget the need to record incomes, expenses and tax deadlines. This is because most freelancers don't find this as an important responsibility. According to Salve Duplito a Resident Financial Advisor "Unpaid taxes and unfiled documents are like vipers hiding on your closets. They are easy to ignore, until its too late, and they decide to strike."

As a freelancer , it is important to record every earning specially if you or your small business earn big. The sooner a freelancer set their tax filing system straight, the more worry free their life is going to be.

A freelancer is required to:

1. prepare monthly returns

2. Meet monthly and quarterly schedules of tax payments

3. Submit reports and audit financial statements

4. Keep books of accounts

5. Issue Receipts

An earner that makes more than P 1.9 million is vat-able in an amount of 12% VAT. While and earner that earn less the P1.9 million a year should pay 3% percentage tax. For those people whose business provides services, percentage tax is more practical. Keep in mind that this is considered separate from personal income tax payments.

When Income tax is filed, there are two choices to compute allowed deductions:

1. Optional Standard Deduction of 40% of income.

2 Itemized deduction, which has no limit

Experts still prefer to use the OSD-Optional Standard Deduction since it is hassle free, simplifies record keeping and removes the necessity to defend a specific deduction/expense to the BIR. Other experts also says that it is fairly impossible to exceed paying more that 40% limit. 

In the other hand, other experts recommend Itemized Deduction to reduce the amount of tax that needs to be paid tremendously. In this computation, a tax payer may deduct anything at a very reasonable and realistic cost as long as theirs a receipt or proof of payment clearly indicates the necessity of the expense to the business. Careful and proper classification of deductions are very important in this computation since it could lead to disallowed deduction if its not properly organized. BIR follows only 1% of gross as a threshold for the allowable deduction amount. 

In a business, being able to issue receipts and claim that your a business person that pays taxes is considered a measure of competence and professionalism. For someone who is not fully aware of tax declaration may also hire a competent accountant that can be trusted or someone who can teach the right way to do your taxes.