BIR Tax Returns and Filing Made Easy PDF

BIR Tax Returns and Filing Made Easy Mark Anthony Pojol Managing Partner Pojol and Gabay, CPAs Outline What are taxes? Why does the government collect taxes? Where do our taxes go? What are the relevant laws on taxes? Who pays taxes? What are the different types of taxes? How to pay...

BIR Tax Returns and Filing Made Easy Mark Anthony Pojol Managing Partner Pojol and Gabay, CPAs Outline What are taxes? Why does the government collect taxes? Where do our taxes go? What are the relevant laws on taxes? Who pays taxes? What are the different types of taxes? How to pay taxes? How to manage your tax compliances effectively? What are taxes? These are mandatory contributions of everyone to raise revenues for nation-building. It is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures. Why does the government collect taxes? These funds are used by the government to finance basic social services that are vital to the lives of citizens and economic growth. Taxes are used to build schools, hospitals, roads and various infrastructures for connectivity, and industrial and agricultural activities, and to pay for our doctors, teachers, soldiers and other government personnel and officials. Why does the government collect taxes? Without taxes, the government would be paralyzed for lack of motive power to activate and operate it. (GR No. L-28896, February 17, 1988) Lifeblood Doctrine: Just like in a human body the blood is the river of life. In a government, taxation is the blood of the government that keeps it alive. The government cannot operate its function to serve and protect the people without the money to pay for its expenses. Where do our taxes go? For every ₱100 we contribute to our taxes: 40% goes to the local government, together with their local funds to provide services to its people. 60% goes to the national government, which are used to fund and invest in programs that benefit the whole country. Where do our taxes go? Part of our taxes gets directly transferred to the poorest through targeted transfers. Pantawid Pamilyang Pilipino Program (4Ps) Pensions to qualified senior citizens Allowances for PWDs Sponsored PhilHealth members What are the relevant laws on taxes? Inherent Powers of the State Power of Taxation An inherent power of the state exercised through legislature, to impose burdens upon subjects and objects within its jurisdiction, for the purpose of raising revenues to carry out the legitimate objects of the government. What are the relevant laws on taxes? Inherent Powers of the State Police Power This is the power vested in the Legislature by the Constitution to make, ordain, and establish all manner of wholesome and reasonable laws, statutes, and ordinances, either with penalties or without, not repugnant to the Constitution, for the good and welfare of the State and its subjects. What are the relevant laws on taxes? Inherent Powers of the State Power of Eminent Domain This is the right of the State to acquire private property for public use upon payment of just compensation and observance of due process. What are the relevant laws on taxes? Philippine Constitution Art. VI, Secs. 27-29 Art. VIII, Sec. 5 Art. X, Secs. 5-6 Art. XIV, Secs. 4, 11 What are the relevant laws on taxes? Art. VI, Sec. 27 (2) The President shall have the power to veto any particular item or items in an appropriation, revenue, or tariff bill, but the veto shall not affect the item or items to which he does not object. What are the relevant laws on taxes? Art. VI, Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. (2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government. What are the relevant laws on taxes? Art. VI, Sec. 28 (3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. (4) No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress. What are the relevant laws on taxes? Art. VI, Sec. 29 (3) All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the Government. What are the relevant laws on taxes? Art. VIII, Sec. 5 The Supreme Court shall have the following powers: (b) All cases involving the legality of any tax, impost, assessment, or toll, or any penalty imposed in relation thereto. What are the relevant laws on taxes? Art. X, Sec. 5 Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. What are the relevant laws on taxes? Art. X, Sec. 6 Local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them. What are the relevant laws on taxes? Art. XIV, Sec. 4 (3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. (4) Subject to conditions prescribed by law, all grants, endowments, donations, or contributions used actually, directly, and exclusively for educational purposes shall be exempt from tax. What are the relevant laws on taxes? Art. XIV, Sec. 11 The Congress may provide for incentives, including tax deductions, to encourage private participation in programs of basic and applied scientific research. Scholarships, grants-in-aid, or other forms of incentives shall be provided to deserving science students, researchers, scientists, inventors, technologists, and specially gifted citizens. What are the relevant laws on taxes? National Internal Revenue Code (Republic Act No. 8424) and its amendments Republic Act No. 10963 (Tax Reform for Acceleration and Inclusion or TRAIN Law) Republic Act No. 11534 (Corporate Act) Recovery and Tax Incentives for Enterprises or CREATE What are the relevant laws on taxes? National Internal Revenue Code Outline Organization and Function of the Bureau of Internal Revenue Types of Taxes and Rules Remedies What are the relevant laws on taxes? National Internal Revenue Code Outline Compliance Requirements Statutory Offenses and Penalties Allotment of Internal Revenue Tax Incentives What are the relevant laws on taxes? Administrative Materials Revenue Regulations (Defines rules and regulations for effective enforcement of NIRC and related statutes) Revenue Memorandum Orders (Provides directives or instructions, guidelines, processes, workflows and procedures) Revenue Memorandum Circularsk (Publishes pertinent and applicable portions, and amplifications of laws, rules and regulations issued) What are the relevant laws on taxes? Local Government Code (Book II) Part I: Local Government Taxation (Business Permits) Part II: Real Property Taxation Provincial and City/Municipal Revenue Codes/ Ordinances Who pays taxes? Filipinos (resident citizens) residing in the Philippines are taxed based on income earned here and abroad. Filipinos living abroad (non-resident citizens, including OFWs) are taxed based on income earned in the Philippines. Resident and non-resident aliens are taxed based on their income earned in the Philippines. Who pays taxes? Domestic corporations are taxed based on income earned here and abroad. Foreign corporations are taxed based on their income earned in the Philippines. What are the different types of taxes? Taxes are paid according to our income and/or level of consumption (progressive taxation). Income tax is based on the ability-to-pay principle where in people with higher income should pay more. Consumption tax is based on the amount of goods and services utilized such that the more you consume, the higher tax you pay. What are the different types of taxes? Taxes can either be direct or indirect. Direct taxes are those paid from your income and properties. Examples include individual and corporate income taxes, transfer taxes (capital gains, donor’s tax, estate tax). Indirect taxes are collected based on consumption. Examples include excise taxes, business taxes (percentage tax or VAT), documentary stamp taxes. What are the different types of taxes? Income tax is direct tax paid by an individual or an organization imposed on: Compensation income: Salaries, wages, taxable bonuses, fringe benefits, and other allowances Business income: Practice of profession, trade, gains from sale of assets, other income not covered by compensation Passive income: Bank deposits, royalties, dividends What are the different types of taxes? The usual income tax rates are as follows: Individuals: Graduated tax table rates ranging from 15% to 35%, or 8% gross income tax (in lieu of percentage and income taxes) Non-individuals: Regular rates at 20%-25%, minimum corporate income tax at 2% of gross income What are the different types of taxes? Individual Income Tax Computation (Tax Regimes) 8% income tax in lieu of percentage taxes (RMO No. 23-2018) Graduated income tax table (Sec. 24 (A)(2) of NIRC, as amended) Taxable income of ₱250,000 and below is taxed at 0% for both regimes, except for mixed income earners opting for 8% income tax for their business/profession income Pure compensation earners are not allowed to elect the 8% income tax regime What are the different types of taxes? Taxpayers Not Qualified for the 8% Income Tax Rate Purely compensation income earner VAT-registered taxpayer Gross sales or receipts and other income for the taxable year exceeded the ₱3 million VAT threshold Taxpayers subject to other percentage taxes (other than Sec. 116 of the Tax Code) What are the different types of taxes? Taxpayers Not Qualified for the 8% Income Tax Rate Partners of a general professional partnership (GPP) Taxpayers enjoying income tax exemption (e.g., BMBE, etc.) Taxpayers who opted optional standard deduction (OSD) Taxpayers who did not or failed to opt for the 8% income tax rate What are the different types of taxes? Individual Income Tax Computation (Method of Deduction) Itemized deductions (Sec. 34 of NIRC, as amended) or Optional standard deduction (Sec. 34 (L) of NIRC, as amended) Optional standard deduction is 40% of gross sales/receipts/revenues/fees No need to provide for financial statements (audited and unaudited) if OSD is selected Sec. 35 (Allowance for Personal Exemptions for Individual Taxpayers) has been repealed by Republic Act No. 10963 or TRAIN Law What are the different types of taxes? Individual Income Tax Computation (Quarterly ITR filing) Review the quarterly filings, *the tax regime and/or method of deduction selected in the **initial quarterly income tax return is irrevocable * Except if the taxpayer has breached the VAT threshold ** For old registrants: Quarterly income tax return for 1st quarter For new registrants: First quarterly income tax return filed What are the different types of taxes? Individual Income Tax Computation (Annual ITR Installment Payment) When a tax due is in excess of ₱2,000, the taxpayer may elect to pay the tax in two (2) equal installments, in which case, the first installment shall be paid at the time the return is filed and the second installment on or before October 15 following the close of the calendar year (Sec. 56 (A) (2) of NIRC, as amended) What are the different types of taxes? Corporate Income Tax Computation (Tax Rates) 20-25%, in general (for domestic corporations, depending on the amount of total assets and total taxable income, as amended by CREATE act), or 2% minimum corporate income tax (as amended by CREATE act) MCIT is imposed beginning in the fourth year following the year of commencement of business operations What are the different types of taxes? Corporate Income Tax Computation (Tax Rates) 20% (for domestic corporations, ₱100,000,000 or below assets excluding land and ₱5,000,000 or below taxable income) 25%, above the thresholds and for resident foreign corporations What are the different types of taxes? Corporate Income Tax Computation (Method of Deduction) Itemized deductions (Sec. 34 of NIRC, as amended) or Optional standard deduction (Sec. 34 (L) of NIRC, as amended) Optional standard deduction is 40% of gross income (income less cost of sales/services) as defined under Sec. 32 of NIRC General professional partnerships (GPPs) and the partners of such partnership may avail of the OSD once, either by the GPP or the partners comprising the partnership What are the different types of taxes? Corporate Income Tax Computation (Quarterly ITR Filing) Review the quarterly filings, the method of deduction selected in the *initial quarterly income tax return is irrevocable * For old registrants: Quarterly income tax return for 1st quarter For new registrants: First quarterly income tax return filed What are the different types of taxes? Net Operating Loss Carryover (NOLCO) [RR 14-2001] The net operating loss of the business or enterprise for any taxable year immediately preceding the current taxable year, which had not been previously offset as deduction from gross income shall be carried over as a deduction from gross income for the next three (3) consecutive taxable years immediately following the year of such loss What are the different types of taxes? Net Operating Loss Carryover (NOLCO) [RR 14-2001] Any net loss incurred in a taxable year during which the taxpayer was exempt from income tax shall not be allowed as a deduction Net operating loss carry-over shall be allowed only if there has been no substantial change in the ownership of the business or enterprise NOLCO shall be availed of on a “first-in, first-out” basis What are the different types of taxes? Net Operating Loss Carryover (NOLCO) [RR 14-2001] NOLCO shall be allowed as deduction in computing the taxpayer’s income taxes per quarter and annual final adjustment income tax returns The taxpayer shall, at all times, show its NOLCO deduction, in its income tax return, as a separate item of deduction In no case may NOLCO be claimed, as a part of the taxpayer’s other itemized deductions, like under deduction of “losses,” in general What are the different types of taxes? Net Operating Loss Carryover (NOLCO) [RR 14-2001] The NOLCO shall be separately shown in the taxpayer’s income tax return (also shown in the Reconciliation Section of the Tax Return) while the unused NOLCO shall be presented in the Notes to the Financial Statements showing, in detail, the taxable year in which the net operating loss was sustained or incurred, and any amount thereof claimed as NOLCO deduction within three (3) consecutive years immediately following the year of such loss Failure to comply with this requirement will disqualify the taxpayer from claiming the NOLCO What are the different types of taxes? Percentage tax is a business tax imposed on persons or entities who sell or lease goods, properties or services in the normal course of business and are not VAT-registered. Is a direct tax based on gross sales or receipts at 3%. Is applicable to VATable activities below the VAT threshold. (Sec. 109 (CC) and Sec. 116 of NIRC) Also applies to specific transactions regardless of VAT threshold. (Secs. 117 to 127 of NIRC) What are the different types of taxes? Value-added tax (VAT) is a type of business tax imposed on seller of goods and services and is typically passed on to the buyer as part of the selling price. 12% for non-exempt domestic and imported goods and services. 0% for exports and export-related transactions. Exempt for selected goods and services (Sec. 109 of NIRC). What are the different types of taxes? Output tax is the VAT due on the sale, lease or exchange of taxable goods or properties or services by any VAT-registered person Input tax means the VAT due on or paid by a VAT-registered person on importation of goods or local purchase of goods, properties or services, including lease or use of property in the course of his trade or business Output tax - Input tax = VAT payable (Excess input) What are the different types of taxes? Withholding tax is a form of tax paid to the government by the payor of the income rather than the recipient of the income. Taxpayers are designated withholding agents of the government and are required to remit taxes withheld from payments to employees, certain suppliers and expenses. What are the different types of taxes? Withholding tax are classified as follows: Creditable withholding tax, creditable or deductible against income tax due of the payee. Final withholding tax, prescribed on certain passive income payments and constitutes full and final payment of income tax on that particular income subject to final withholding tax. What are the different types of taxes? Creditable withholding tax are classified as follows: Withholding tax on compensation are taxes withheld from income payments to individuals arising from an employee-employer relationship. Expanded withholding taxes are prescribed on certain income payments and is creditable against income tax due of the payee. What are the different types of taxes? Capital gains tax is imposed upon capital gains presumed to have been realized from the sale, exchange or disposition of capital property in the Philippines Capital gains on sale of real property in the Philippines held as capital assets. Sale of shares of stocks of a domestic corporation sold not thru the local stock exchange. What are the different types of taxes? Donor’s tax is a transfer tax on a donation or gift, and is imposed on the gratuitous transfer of property between two or more persons who are living at the time of the transfer. What are the different types of taxes? Estate tax is a tax on the right of the deceased person to transmit or transfer his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers. It is not a tax on property. It is a tax imposed on the privilege of transmitting property upon the death of the owner. What are the different types of taxes? Documentary stamp tax is a tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto. What are the different types of taxes? Effect of non-payment of DST An instrument, document, or paper which is required by law to be stamped and which has been signed, issued, accepted or transferred without being duly stamped, shall not be recorded, nor shall it or any copy thereof or any record of transfer of the same be admitted or used in evidence in any court until the requisite stamp or stamps shall have been affixed thereto and cancelled. What are the different types of taxes? Effect of non-payment of DST No notary public or other officer authorized to administer oaths shall add his jurat or acknowledgment to any document subject to documentary stamp tax unless the proper documentary stamps are affixed thereto and cancelled. What are the different types of taxes? Excise tax is a tax on the production, sale or consumption of a commodity. Alcohol products Tobacco products Petroleum products Miscellaneous articles (automobiles, non-essential goods and services, sweetened beverages) Mineral products How to pay taxes? Install eBIRForms offline or login online if eFPS taxpayer. Select the tax form applicable and fill-up the necessary details. Validate and submit the form, save the email confirmation as proof of filing. Pay over-the-counter through authorized agent banks (AABs) or online via GCash, Paymaya, UnionBank, LandBank LinkBiz. If eFPS taxpayer, pay through the enrolled bank account online. How to pay taxes? Tax deadlines Income Tax Annual (Form 1701/1702) April 15/15th day of the 4th month following the close of taxable year Quarterly (Form 1701Q) May 15 – 1Q, August 15 – 2Q, November 15 – 3Q Quarterly (Form 1702Q) 60th day following the close of the taxable quarter Percentage Tax (Form 2551Q) 25th day following the close of the taxable quarter Withholding Tax on Compensation (Form 1601-C) 10th day following the close of the taxable month Tax deadlines Expanded/Final Withholding Tax Monthly (Form 0619-E/F) 10th day following the close of the taxable month Quarterly (Form 1601-EQ/FQ) last day of the month following the close of the taxable quarter Consider groupings per RR No. 26-2002 (eFPS) Value Added Tax (VAT) Monthly (Form 2550M), optional Quarterly (Form 2550Q) 25th day of the month following the close of the taxable quarter, in general Tax deadlines Annual Information Returns (1604-C) January 31 (1604-E/F) March 1 Inventory List per RMC No. 57-2015 - January 30 Refund of excess taxes withheld on compensation of employees - January 25 BIR Form 2316 (Certificates of Compensation Payment/Tax Withheld) issuance to employees - January 31 Tax filings RMC No. 44-2023 eBIRForms, payment through AABs, RCOs, electronic payment channels eFPS, payment through enrolled eFPS-AABs Manual filing No manual submission is required for returns without attachments Submission of attachments can be done manually or through eAFS Tax filings RMC No. 19-2015 If there are other attachments to be submitted such as Summary Alphalists of Withholding Tax (SAWT), Quarterly Alphalists of Payees (QAP) required under BIR Form Nos. 1600, 1601-EQ, 1601-FQ, it shall be prepared using the Data Entry Module or Summary List of Sales/ Purchases/Importation for all VAT taxpayers in BIR Form No. 2550Q prepared using the RELIEF of the BIR and submitted via email to: [email protected] How to pay? How to pay? How to pay? How to pay? How to manage your tax compliances effectively? Understand your business model Make sure that you understand your business and correct tax types relevant to your business model and types of business transactions. How to manage your tax compliances effectively? Be prepared, be early Preparedness beats the long line at the BIR office. Better file all of your tax returns before its due date. Computations must be prepared ahead of time to have enough time to check for errors. How to manage your tax compliances effectively? Maintain updated records Always ensure that you are keeping detailed and updated records of all financial statements and reports within the year. Not only this is a fundamental mantra for bookkeeping, it will also help you keep track of business growth. How to manage your tax compliances effectively? Be honest Always declare your income honestly and accurately. Issue official receipts and invoices for every sale. The BIR conducts several investigations whether you record sales and report it in your books. Declaring incorrect income information can lead to criminal charges. How to manage your tax compliances effectively? Consider hiring a professional Consider hiring a certified accountant or a bookkeeper if you can't keep up with the tax and accounting tasks. It is a good idea to hire somebody that knows the “ins and outs” of accounting and taxation so the business owner can focus their energy on more important things.  INCOME INCO TAXES  Thank you! Like and follow Pojol and Gabay, CPAs Facebook Page Join us at Philippine Tax Discussion Forum Facebook Group