#AskTheTaxWhiz: Checklist when filing income tax returns

Mon Abrea

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#AskTheTaxWhiz: Checklist when filing income tax returns
A former BIR examiner lists down requirements when filing income tax returns by April 15

This is the first time I am filing an income tax return (ITR). I have been an employee for two years since I graduated from college. I know April 15 is the deadline, but I am still not at ease about whether I have properly complied with the many Bureau of Internal Revenue (BIR) regulations. Can you give a checklist of things to consider or do before filing ITRs? 

First, you have to check your registration. If you are registered as an employee with two or more employers for a taxable year, you need to file BIR Form 1700 and attach your BIR Form 2316 issued by your employers. 

For self-employed or mixed income earners, use BIR Form 1701 and attach BIR Form 2307 issued by your clients and/or BIR Form 2316 if you are also employed.

For corporations, they need to file BIR Form 1702 and attach their BIR Form 2307 for the creditable withholding taxes. 

Second, make sure you have done all the bookkeeping requirements audited by an external auditor. Although those making an annual gross income of less than P600,000 or those individual taxpayers who chose Optional Standard Deduction (OSD) are not required to submit audited financial statements, I still recommend for your books and all supporting documents to be checked to ensure accuracy of financial information.

Third, all financial information may have tax consequences or have been used for a specific tax return.

A tax compliance review or tax audit is a must to reconcile all declarations in your monthly tax return with the quarterly and annual income tax return. This is important if you have declared a monthly rent expense amounting to P56,000 subject to 5% expanded withholding tax (EWT), but failed to declare the correct annual rent expense in your ITR of P600,000 due to EWT/VAT computation.

Keep in mind that expenses are declared net of VAT, but inclusive of EWT. In this case, only P50,000 multiplied by 12, or P600,000, will be declared as rent expense.

Finally, verify which mode of filing and payment system you are required to use: eFiling and Payment System, eBIRForms, and manual.

I think I know now why many of us look for a fixer when dealing with BIR. No matter what we do, we end up being penalized for not doing it right despite our best intention to comply. Guilty as charged, I have hired fixers several times. Is there a way to understand everything without having to pay again unnecessary penalties and compromises?

Let me introduce to you our foundation, the Center for Strategic Reforms of the Philippines or CSR Philippines. Its main advocacy is to promote small and medium enterprise (SME) development and genuine tax reform towards inclusive growth.

CSR Philippines is the publisher of tax handbook Got A Question About Taxes? Ask the Tax Whiz!, answering frequently-asked questions on filing ITRs. It will soon be available in all Fully Booked stores nationwide and in our tax roadshow caravans.

We have also published the first-ever Tax Komiks in Filipino language, discussing the process of starting and registering a business and the basic tax requirements. This will be available soon in all Negosyo Centers nationwide.

If you have been audited by BIR regularly or every other years, and you have been compromised or have settled under-the-table, you might be interested to enroll in the Citizen Tax Planning (CTP) certification program.

CTP is a 3-year tax planning, with comprehensive audit of the last 4 years to help taxpayers enjoy a tax-free lifestyle. For more information, e-mail hazel@acg.ph or call +639178010191.

If I fail to file my ITR, will BIR run after me? Will they know? How will they know how much I am supposed to declare and pay in taxes? 

Yes, BIR can assess any taxpayer at any point in time. As BIR Commissioner Kim Henares always says, it is their mandate to assess and to collect taxes. They have an information tax system that shows all the tax payments of all registered taxpayers. 

BIR may not have all the information to assess a taxpayer, but they can use third party information like from your clients, suppliers, credit card transactions, etc. 

The best strategy is to pay the right taxes.

Got a question about taxes? #AskTheTaxWhiz! Tweet @rapplerdotcom or email us at business@rappler.com. – Rappler.com

Mon Abrea is a former BIR examiner and an advocate of genuine tax reform. He serves as chief strategy officer of the country’s first social consulting enterprise, the Abrea Consulting Group, which offers strategic finance and tax advisory services to businesses and professionals. Mon’s tax handbook, Got a Question About Taxes? Ask the Tax Whiz! is now available in bookstores nationwide. Follow Mon on Twitter: @askthetaxwhiz or visit his group’s Facebook page. You may also email him at consult@acg.ph.

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