Tax 101 for the Learning SME Owner
Answers to FAQs on taxes and filing of income tax returns for your growing SME
Perhaps, you can remember the famous line from the film Meet Joe Black that says, “In this world, nothing is certain but death and taxes.” True enough, we’re all bounded by taxes, something that the employees and business owners are aware of. However, unlike larger corporations, the small and medium enterprises or SME’s still find it hard to fully understand the what’s and how to’s of business taxes in the Philippines.
Whether you’re a newbie trying to learn business tax or an old SME owner still seeking for answers, this short article will help you out in o! Check out some answers to FAQs for filing of tax returns:
1. What are the different types of taxes that my business can be subjected to?
Actually, the kind of taxes a business pays depends on the kind of business that an SME offers. But for starters, it requires you to pay percentage tax, income tax, and value added tax or VAT.
Percentage tax is paid for sold or leased goods, properties or services that do not exceed gross annual sales or receipts of P550,000 and are also not VAT-registered. It's usually computed as the percentage of your sales.
Income tax is imposed on a person, including his or her income, salary from one’s practice of his or her profession, profits from property, and business transactions. Thus, companies deduct withholding tax from the compensation an employee receives. It's important to note that as a business owner, your individual income tax is still different from the business tax that you should pay.
VAT or value added tax is another form of tax. VAT cascades to buyers. For instance, if a realty business sells or leases a condominium unit at the price of no less than 1,919,500 pesos, the buyer or lessee will have to pay a corresponding VAT for the purchase or lease. For purchases that do not exceed 1,919,500 pesos a corresponding percentage tax is imposed.
2. When, where, and how do I file my company’s and employees’ taxes?
Again, depending on the kind of business you own, the deadline for filing your taxes will also differ. If you're required to pay tax monthly, the deadline is not later than the 20th day of the month. If it's quarterly, If it's quarterly, income tax should paid on April 15, August 15, and November 15. For VAT, it should be paid not later than 25 days after the last quarter. While for the Percantage Tax, it should be paid withing 20 days after each quarter.
Once you’ve sorted out the required tax, you should head to the Revenue District Office (RDO) where the business is registered. For some types of taxes, you can pay it in your local municipality treasury or online in BIR.
It is important to come armed with audited financial statements or a report that presents profits and losses and other resources invested in one’s business. This financial statement comes with the ITR sheet.
3. Speaking of financial statements, what are part and parcel of a taxable revenue?
For your employees, it’s quite easy to compute for the taxable income since there’s an existing formula for that: Monthly Basic Pay + Overtime Pay + Holiday Pay + Night Differential) - (SSS/PhilHealth/Pag-IBIG deductions - Tardiness – Absences).
On the other hand, the computation for the business is not as fixed as that of an employee’s since the net taxable income determines the amount of income tax return or the income tax rate. Essentially, SME’s pay a kind of self-employment tax. Likewise, if you have employees working for your business, it is incumbent on your part to pay employment taxes on their behalf. To give a rough estimate, an income of around 50,000 pesos will generate taxes amounting to 2,500 with an additional 15% for anything beyond 30,000 pesos.
4. What are some of the ways that I can optimize income tax payments? How do I update myself with the latest for paying income taxes from the BIR?
There are some reliable websites that can be accessed to update oneself on current trends, practices, rules and regulations for filing a person’s or a business’ income tax returns. One of which is knowyourtaxes.ph. This website articulates some of the basic and necessary information you need to know about filing income tax returns. This includes the complete listing of BIR offices, an up-to-date tax calendar, and eBIR forms link where one can simply download forms for income tax collection.
Furthermore, the great thing about knowyourtaxes.ph is a link that allows a person to pay taxes online through a GCash service that can be downloaded as an app on one’s smartphone or Internet device. A GCash or a GCash service is a kind of virtual wallet where a person stores money that can be used to pay income tax returns.