10 Mistakes to Avoid When Filing Income Tax Return

There is only one week left until April 15 is here – the deadline for annual income tax filing. If you are already done filing your income tax return with the BIR, then congratulations for making it earlier than the due date. For others who have not yet filed their income tax declarations, it’s important to take extra care and verify the correctness of your tax return to avoid errors that could lead to problems, such as paying penalties, facing BIR audit and investigation.

To guide you, here are 10 mistakes you should avoid when preparing and filing your income tax return.


1. Incomplete data

This mistake is very common to taxpayers, especially when they are already filing near the deadline and there’s no ample time to review their return. But no matter how you need to hurry, don’t forget to complete all the required information in the income tax return, including your TIN (taxpayer’s identification number), registered name, tax period, date of filing, registered address, RDO code, tax computation, community tax certificate details, and signature. Remember that incomplete information on your return can be a ground for incorrect filing.


2. Miscalculation

Another common mistake is having mathematical errors on your tax return. So whether you have prepared your income tax return on your own or it is prepared by your accountant, always review all the calculation. Review even the simple addition and summation. You don’t need to be an accountant to learn how to use a calculator, right?


3. Not reconciling with other tax declarations

One of the auditing tactics used by tax examiners is the reconciliation of the taxpayer’s various taxes. For example, they will examine the revenues you have declared on your VAT or Percentage tax returns to the revenues you have declared on your income tax return. They may also examine your certificate of withholding taxes to your income tax return. If there are suspicious discrepancies found, your income tax declaration or other tax declaration may be considered for assessment. Thus, always make sure that your figures in the income tax return are reconciled to the figures you have declared on your other tax returns. For example, your rent expense must be reconciled to the rent payment in your expanded withholding tax returns. To learn more, please read our post on Tips for Income Tax Preparation.


4. Not reconciling information within the tax return

Another important verification you must do is the reconciliation of information within your income tax return. For example, don’t claim any exemptions from dependent children if you have checked the box for single status and the box that says you’re not claiming additional exemptions. Another mistake to avoid for self-employed individuals and corporations is checking itemized deduction, but actually claiming optional standard deduction. In short, always check the right choice and give the right requirements for the choice you have checked.


5. Incomplete attachments

When claiming tax credits, like creditable withholding taxes, don’t forget to attach on your income tax return the corresponding certificate of creditable withholding taxes. Thus, if you are claiming against your tax due the withholding tax on your compensation that your employer has withheld, make sure to attach your BIR form 2316 or Certificate of Compensation Payment/Tax Withheld. Further, complete all attachments that the NIRC may require you, such as your original return when filing amended return or audited financial statements (with CPA certificate or auditor’s reports) when required in your case. Actually, income tax returns (BIR 1700, 1701, 1702 and the rest) have guidelines and instructions printed on them (usually at the last page) stating the procedures for filing, attachments required, and other important instructions on each form. So just read carefully all the guidelines and instructions stated in the form, and follow them.


6. Claiming beyond allowable deductions

Prudence must be observed in claiming allowable deductions because there are certain expenses that have limitation. For example, there is a limit in claiming expenses on Entertainment, Amusement and Recreation (EAR). EAR expenses are only limited to 0.5% of net sales for sellers of goods or 1% of net revenue for seller/provider of services. Bad debts expenses on receivable are also only deductible when actually ascertained to be worthless and charged off within the taxable year. Take note also that personal, living or family expenses are not deductible to your taxable income. This is because they are not related to your business or practice of profession. Thus, make sure to only deduct what are allowed.


7. Not declaring other income

Income not directly related to your registered line of business or profession must also be declared in your individual income tax return. This type of income includes your dividend income from corporations, share of partnership income, rental income, interest income, and other income that are not directly related to your line of business or profession. Failure to declare your other income that may be taxable may result to future tax liabilities.


8. Not using the right tax forms

Tax forms are subject to revisions. On November 2011, the BIR has just issued the revised forms for the annual income tax return filing, which include BIR Forms 1700, 1701, and 1702. Thus, use the latest required forms rather than using the old ones. You can also use the BIR’s recently issued interactive forms for income tax filing.


9. Missing the deadline

Failure to file income tax return on or before the due date can give taxpayers troubles. Late filing or payment of income tax is already subject to penalties, which may include interest, surcharge and compromise. Thus, don’t wait till the last minute to file your annual income tax to avoid paying extra expenses that you should not be paying in the first place. Missing the deadline can result from waiting the due date. Hence, don’t wait the deadline before you file your income tax return if you don’t want to experience cramming and waiting in a crowd with other last minute taxpayers.


10. Not filing in good faith

When you file your income tax return and affix your signature on it, you declare, under the penalties of perjury, that your annual return has been made in good faith, verified by yours, and to the best of your knowledge and belief, is true and correct. Perhaps the most common of all mistakes committed by taxpayers is signing their income tax return without fully understanding and conforming to what they are signing for. Thus, before you sign your tax return, make sure that you have really made it in good faith to avoid troubles in the future.


Disclaimer: This post is published for informational use only and doesn’t warrant professional advice. We encourage taxpayers to consult with the BIR / tax authorities for more inquiries. Amendment and subsequent tax laws, regulations and issuances may render this post partially or entirely obsolete.