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The Freelance Pinoy

Expert Advice for Freelancers

Search Results for: taxes

Guide #3: 3 Kinds of Taxes for Pinoy Freelancers

June 9, 2011 by Stef

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After a successful visit and registration process with the BIR, the next step is to identify the kinds of taxes you’ll be paying and how to compute for them.

If you already have an accountant in mind who can take care of your taxes, that’s great. But if you’d still like to know where a percentage of your professional fees are going to, continue reading this post.

There are three major kinds of taxes that a Pinoy freelancer must file and pay: the annual registration fee, income tax, and business tax. To make things easy for you, let’s tackle each one at a time.

1. Annual Registration Fee

After registering at the BIR, you are required to pay an annual registration fee of P500. This is paid on the first or last day of the month of January. The RF is paid after payment of initial registration as a tax payer.

You’ll be using BIR form 605 for this. You can pay at your accredited agent bank under your RDO, through G-Cash, or through the BIR’s eFPS system. Again, I suggest paying directly at an AAB to avoid the risks of paying online.

2. Income Tax

Income tax is a percentage of our income paid to the BIR. Since we are registered as professionals, we can declare how much our taxable income is by computing for our gross income minus the allowable deductions.

According to the table on BIR form 1701 (Quarterly Income Tax Return for Self-employed Individuals, Estates, and Trusts), income tax for individuals is between 5% to 32%. Use the tax table on page 2 as your reference every time you compute for your taxable income.

A freelancer can apply two types of allowable deductions to their gross income:

  • Optional Standard Deduction – the professional applies a maximum of 40% deduction to their gross income. Doing so will not require you to prepare an Account Information form/Financial Statement. I’m guessing that this type of allowable deduction is for professionals who don’t have the time, patience, and energy to itemize their expenses.
  • Itemized Deduction – all ordinary and necessary expenses made for your business are accepted as itemized deductions. These expenses must be made during the taxable year and at a time when your business is operational.Some good examples are transportation fees, postage fees, rental expenses, etc. The catch here though is that you need to provide proof that you made these expenses in the form of receipts, vouchers, sales invoices, and bank statements.

You can hire a CPA to compute for your income taxes if you feel that this is too much for you to handle. Just remember that your taxable income is gross income less your allowable deductions.

3. Business Taxes

The third and final type of tax we freelancers are required to pay are business taxes. As explained by the BIR officer who handled my briefing, the difference between the business tax and the income tax is that the former is applied to every transaction made between you and your clients. The latter focuses only on your taxable income.

There are two types of business taxes:

  • Value Added Tax – the infamous VAT is applied if your annual gross income is P1.5M and above per year. VAT is 12% of every transaction.
  • Percentage/Non-VAT tax – this is used if the tax payer is non-VAT registered and if his gross income is not more than P1.5M per year. The percentage tax is a minimum of 3%.

The VAT or percentage tax is filed using BIR form 2550M and 2551M.

Important Reminders for You, the Professional

I’m no expert when it comes to computing for taxes and filing them to the BIR, but I did pick up a couple of good reminders that every freelancer should keep in mind.

  1. You have to file for an income tax return EVEN when you didn’t earn income for that specific time period. If you don’t, the BIR will assume you are still operating and earning income and will investigate your case if they noticed the lapses.
  2. If your clients are all dollar-paying customers, you are exempted from paying the 12% value added tax. It is only when you’re transacting with local/Philippine-based clients that you are required to pay VAT.
  3. As soon as you receive your COR and TIN, start recording every single sale or expense made for your business. Save all of your receipts, vouchers, and invoices so that you have complete proof for your declared allowable deductions.
  4. Don’t be tempted NOT to pay your taxes. You’ve gone this far and are now under the watchful eye of the BIR, so do your best to diligently pay your taxes OR file a return if you believe you didn’t earn income for the current tax period. If you have questions, contact the BIR or your CPA for clarification.

A Copy of the Professional’s Tax Guide

All this information I picked up from the BIR briefing and from this tax guide provided by the BIR. I encourage you to download this document right now:

Tax Guide for Professionals: A Quick and Easy Primer for Paying Your Taxes

This helpful guide covers most of the basic information regarding taxation for professionals. It also contains step-by-step instructions on how to compute for your income and business taxes, where to file for taxes, and when the due dates for each form is.

Use this as your reference whenever you feel lost or confused about your taxes. I also suggest consulting with a CPA to help you compute and file for taxes to ensure that you aren’t making the wrong computations and you are paying the right amount in taxes every year.

>> GUIDE #4: HOW TO COMPUTE FOR YOUR INCOME TAX RETURNS <<

Tutorials Tagged: BIR, freelancers, freelancing, taxes

Guide #1: 5 Good Reasons Why Pinoy Freelancers Should Pay Taxes

May 26, 2011 by Stef

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Taxation has always been a mystery among Filipino freelancers, yet it’s a necessary step if you want to be considered as a legitimate freelancing business.

While there is a significant lack of clear tax laws applicable to freelancers and online workers, it is still a freelancer’s responsibility to learn about tax laws applicable to his or her situation and to abide by these laws at all times when operating one’s freelancing business.

When I made the decision to register myself as a tax payer, I did receive a handful of negative reactions from members of my family. With the BIR running after the family business and monitoring its income reports, the fact that I can earn without needing to register myself as a tax payer is a dream come true for them.

But I knew that there is still some good in paying taxes, so I did a bit of research to see what resources were out there regarding taxes and freelancing in the Philippines.

You can have a look at these articles:

  • Freelancer’s Guide to Paying Taxes and Securing Social Benefits by Al Sabado
  • Do I Have to Pay Taxes On My Online Income? by PinoyMoneyTalk.com
  • The Pinoy Tax Yahoo! Group

As you can see, it’s an issue that’s already been discussed, debated, and argued upon. The fact of the matter is that according to Philippine tax laws, we must pay our taxes if we are located physically within the Philippines and regardless whether the sources of income are coming from within or outside of the Philippines.

Quoting again from PinoyMoneyTalk.com’s article:

A Filipino citizen is taxed based on his taxable income derived within and without the Philippines, which includes part-time works as an offshore, outsourced writer for a US-based website (see page 157 Annex A1 of Philippine Taxation Handbook: A Simplified Course September 2006 Edition).

Again, no matter where the source of income is coming from, it is still taxable by law. If you received your funds from an online MLM scheme, an outsourced project, work from a fellow professional, etc., it is still taxable income.

5 Reasons Why Freelancers Should Pay Taxes

Convinced, I sought the help of a certified public accountant to talk about the process further and to help me with my own taxes. We discussed many things regarding taxation, especially the benefits and consequences of paying and evading taxes.

Here are 5 good reasons why Pinoy freelancers should pay taxes:

  • You need to think long-term. Buying a house or a car is a lifetime investment that securing a loan to buy one will mean presenting actual proof that you have the earning capacity to pay for it. Unless you plan on buying your next Honda Civic or Toyota Lexus in cold cash, you need to show your income tax returns to the company or organization.
  • You are required by Philippine law to pay taxes. Not paying means breaking the law, and if you get caught breaking the law, you will be penalized heavily by the BIR without question. That’s 25% to 50% of your income per year plus up to 20% interest. Read Section 232 of the National Internal Revenue Code.
  • You’re in control of your taxes. Registering as a tax-paying self-employed professional gives you the opportunity to declare your taxable income without the BIR dictating how much you have to declare every year. According to an article by About.me Tax Guide William Perez, “Being self-employed is quite possibly one of the best tax strategies available today…you are in full control of your tax situation, and you can reduce current income by any losses you have from freelancing, renting out property, or investing.“
  • You save yourself from a lot of inconvenience. You may think that you can live without a credit card or a particular service, but as your business grows and your ideas encourage you to go forth and be risky, you will need other payment methods besides cash. Applying for a credit card, a phone line, an internet connection, etc. will definitely be easy if you have ITRs, SSS, and other income-related documents on hand.
  • You’re doing your part as a citizen of the Philippines. It’s certainly difficult knowing that your taxes are pocketed by greedy people in the government, but at least you did your part as a citizen of this country. Even though you have the opportunity to evade and live life tax-free, it’s always good to know that you lived up to your responsibility by diligently calculating and paying your taxes.

>> GUIDE #2: BIR REQUIREMENTS AND REGISTRATION <<

Tutorials Tagged: freelancers, taxes

 

IT’S TIME TO MOVE FORWARD.

 
My name’s Stephanie Gonzaga, a freelance blogger and the founder of this blog.

The Freelance Pinoy started in October 2010 with the goal to provide useful and timeless freelancing tips and advice to Filipino freelancers.

The blog has reached its fourth year in 2014 and has since become one of the leading authorities in freelancing and online work. It’s been recognized by other well-known blogs such as The Write Life and Elance-oDesk, the world’s largest freelancing marketplace. I also got to speak at Freelance Camp Manila 2014, where I got to meet fantastic people with individual dreams and aspirations.

While I had great memories learning and helping the Philippine freelancing community, I’ve decided to go with what my gut tells me to do — to continue growing, exploring, and pushing the boundaries. Deep down, I feel that it’s time for me to move on to other ventures, to focus my energies and efforts on making new work, and to continue making a difference.

So, I’ve decided that it’s time for me to fold up the blog and shut down the email list to focus my time, attention, and resources on new possibilities and creative ventures.

But before that, I want to thank YOU, my readers, for being there since the blog’s early days. To those who’ve shared my posts, who’ve recommended TFP to up-and-coming freelancers, and for simply referencing TFP in your discussions, I’m truly grateful and appreciative!

Thank you as well to the freelancers who have reached out to me and who I’m able to connect with for many years. These relationships I will treasure forever.

WAIT, WHAT ABOUT ALL THE GOOD CONTENT?

I will continue running the site until the hosting plan expires. This will be on January 23rd, 2015.

I want to make the most out of the time left for The Freelance Pinoy though, so I’ve put together the most popular posts on the site and turned them into on-site guides for you to access.

tfp-taxation-guidetfp-online payments

tfpvideosfreelancingresources

That’s not all!

You can still grab my best freelancing lessons, tips, articles, and resources by buying my book. They’ve helped hundreds of Pinoy freelancers find and land their first client, win freelance work, establish themselves on oDesk, and earn income from online work.

twfp-course-final

If anything, this is a memorial snapshot of the bulk of my work for the freelancing community. Knowing that many freelancers have experienced incremental improvements due to the blog means freelancers are becoming a strong sector of the country’s workforce.

Saying goodbye to TFP is one of the most difficult decisions I had to make. It’s almost like saying goodbye to a dear friend or a pet that passed away.

But I’m very confident that you’ll continue learning and interacting with the best, especially with more and more freelancing blogs being created this year. Like I said, you’re in good hands.

What matters now is what you’ll be doing today to reach your freelancing goals and achieve the success you want for yourself.

YOU GOT THIS.

I wish you the best of luck and abundance to flow into your freelancing career.

stef gonzaga signature
Stef Gonzaga

http://thefreelancepinoy.com/home/

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