Benjamin Franklin put it quite accurately:
In this world nothing can be said to be certain, except death and taxes.
Small business owners must face that there is really no way out of taxes as these are normal costs to doing business. On top of this, it is a general sentiment that even when businesses pay the right taxes, BIR examiners in the Philippines would still push for tedious audits and assessments, resulting to added costs in the form of penalties.
While unfortunate, business owners need to GO BEYOND this concern and instead, shift focus on growing the business, while preparing accounting books/records for possible examinations and audits.
Grow Your Business
Investing in technology and qualified analytics professionals enable fact-based decision making, resulting to benefits that far outweigh costs. When you manage the right way, you can maximize returns by preventing losses due to fraud or theft, damaged reputation due to lost opportunities or unserved commitments, and even undervaluation of products/services due to excessive stocks or lacking demand. By maximizing returns, tax liabilities appear insignificant and will no longer feel burdensome.
Start gathering your accounting records and ready them for possible examinations. Tax planning, while admittedly administrative, becomes critical and should consider the following important points:
- Accounts must be reconciled with filed taxes during the year:
- Revenue and Sales
- Output VAT/Percentage Taxes
- Creditable withholding taxes must tally with withholding taxes filed and paid by customers (BIR Form 2307)
- Purchases, Contracted Expenses
- Input VAT
- Applicable withholding taxes (BIR Form 1604E)
- Salaries and Employee Benefits
- Applicable withholding taxes (BIR Form 1604CF)
- Alphabetical listing
- All declarations must be supported and substantiated by proper documentation or BIR accreditation (for sales invoicing or point-of-sale), and directly attributable to your line of business.
- Withdrawals from your equity (for sole proprietors) must be properly reflected in your books, within reasonable limits, and aligned with your living standards.
- Check deduction limitations:
- Interest expense (only up to 33% of interest income subject to final tax)
- Representation and entertainment (up to 0.5% of net sales for goods, and 1% of net revenue for services)
- Revenue and Sales
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