How to compute quarterly income tax return in the Philippines for self-employed individuals? If you are a professional who practice your profession or a self-employed individual engaged in a sole proprietorship business, you may be looking for a guide on how to prepare your BIR Form 1701Q. BIR form 1701Q is filed quarterly for the first quarter, second quarter and third quarter. For the annual income tax return, the BIR form 1701 is used. The following are the steps, procedures, requirements, tips and other important information you need to know in computing and preparing your quarterly income tax returns.
What is the BIR form to be used?
The return we need to file is BIR Form No. 1701Q: Quarterly Income Tax Return for Self-employed Individuals, Estates, and Trusts (Including Those with both Business and Compensation Income)
The following are the documentary requirements that need to be attached with the form, if applicable:
1. Certificate of Income Tax Withheld at Source (BIR Form 2307), if applicable
2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable
3. Duly approved Tax Debit Memo, if applicable
4. Previously filed return, if an amended return is filed for the same quarter
Who are required to file BIR Form 1701Q?
This return shall be filed in triplicate by the following individuals regardless of amount of gross income:
1) A resident citizen engaged in trade, business, or practice of profession within and without the Philippines.
2) A resident alien, non-resident citizen or non-resident alien individual engaged in trade, business or practice of profession within the Philippines.
3) A trustee of a trust, guardian of a minor, executor/administrator of an estate, or any person acting in any fiduciary capacity for any person, where such trust, estate, minor, or person is engaged in trade or business.
When are the deadlines or due dates of filing the return?
The following are the deadlines for manual filing of BIR Form 1701Q :
1st qtr: On or before April 15 of the current taxable year
2nd qtr: On or before August 15 of the current taxable year
3rd qtr: On or before November 15 of the current taxable year
How to compute and prepare the quarterly income tax returns?
The following are the steps in the computation and preparation of your quarterly income tax returns. You can also check the sample computation we have provided below. For better understanding, please download BIR Form 1701Q here.
STEP 1: Fill up completely the Part 1 of BIR form 1701Q with the applicable information, which include your Taxpayer Identification Number (TIN), registered name, registered address, line of business or occupation, method of deduction (itemized deduction or optional standard deduction), and other information that are applicable. Also fill in the year, quarter, check if amended or not, and the no. of sheet/s attached which can be found on the top of the return.
STEP 2: Fill up Part 2 of the form, which is the computation of the quarterly income tax. Refer to the form 1701Q to check the line items and their corresponding reference numbers.
Step 2.1: Determine your  Sales/Revenues/Receipts/Fees. Add any  Amount You Received as a Partner from General Professional Partnership (except loans), if any, to arrived at  Total.
Step 2.2: Calculate your  Gross income from Operation by subtracting your  Cost of Sales/Services to your  Total in Step 2.1. Costs of services are the direct costs attributable to the rendering of your services, such as the depreciation of the building for business engage in building rental, internet cost for internet café business, salaries of janitors for business engaged in janitorial services, and others.
Step 2.3: Compute your  Total Gross Income by adding  Gross Income to your  Other Income, if any.
Step 2.4: Determine and compute your total allowable  Deductions for the quarter. You can choose one from the two (2) methods of deduction: (a) Itemized deduction or the (b) Optional Standard Deduction (OSD). Your chosen method of deduction will be your method of deduction for the entire taxable year. The following are the bases for computing the two methods:
Option 1: Optional Standard Deduction (OSD) – A maximum of 40% of their gross sales or receipts shall be allowed as deduction in lieu of the itemized deduction. This type of deduction shall not be allowed for non-resident aliens engaged in trade or business. Example, if you have P100,000 gross sales or receipts for the quarter, you can claim an allowable deduction (OSD) of P40,000 (P100,000 x 40%), if you choose OSD instead of Itemized deduction.
Option 2: Itemized Deduction – There shall be allowed as deduction from gross income all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are directly attributable to the development, management, operation and/or conduct of the trade, business or exercise of a profession including a reasonable allowance for salaries, travel, rental and entertainment expenses. Examples of itemized deductions are the following:
Step 2.5: Calculate your  Taxable Income this Quarter by deducting your  Allowable Deduction computed in Step 2.4 to your  Total Gross Income.
Step 2.6: Compute your  Taxable Income to Date by adding your  “Taxable Income for the Previous Quarter/s” during the taxable year to your  Taxable Income this Quarter. Take the following guides:
- For the 1st quarter, you don’t have  Taxable Income for the Previous Quarter/s since it is the beginning quarter of the taxable year.
- For the 2nd quarter, your  Taxable Income for the Previous Quarter/s is equal to your  Taxable Income this Quarter in the 1st quarter.
- For the 3nd quarter, your  Taxable Income for the Previous Quarter/s is equal to the “total of your taxable  Income this Quarter in the 1st and 2nd quarters” or the “total  Taxable income to Date of the 2nd quarter”.
- There is no 1701Q filed and computed in the fourth quarter. Instead the annual income tax return (BIR Form 1701) is filed and computed. To learn how to compute annual income tax for self-employed please read our article on “How to compute income tax in the Philippines for self-employed individuals”.
Step 2.7: Compute your  Tax Due using the Graduated Tax Table for Individuals. You can jump below Step 2.9 to see tax rates table and our sample computation.
Step 2.8: Compute your  Tax Payable by deducting to your  Tax Due to your  total tax Credits/Payments for the Quarter, which include [38A/B] Prior Year’s Excess Credits, [38C/D] Tax Payment(s) for the Previous Quarter(s), [38E/F] Creditable Tax Withheld for the Previous Quarter(s), [38G/H] Creditable Tax Withheld Per BIR Form 2307 for the Quarter, and [38I/J] Tax Paid in Return Previously Filed (if you are filing an amended return).
Step 2.9: Compute your  Total Amount Payable by adding any  Penalties (surcharge, interest and compromise), if there is any. Penalty is charged for late filing. To learn more about computing penalties, please check our article “How to compute BIR penalties”.
Sample computation of quarterly income tax due and payable
Example: Let us assume the following financial information of J. Santos, single and Filipino Citizen, for the 3rd Quarter of 2011. Santos has chosen to claim itemized deduction, instead of Optional Standard Deduction (OSD). He is also filing the return before the due date, which is also not an amended return.
Gross sales: P300,000
Cost of Sales: P 180,000
Expenses (rent, depreciation, salaries, taxes and licenses): P 60,000
Other income: P 20,000
Total taxable income for the 1st and 2nd Quarters: P40,000
Income tax paid for the 1st and 2nd Quarters: P1,000
Creditable tax withheld for the previous quarters: P3,000
Creditable tax withheld per BIR form 2307 for this quarter: P2,000
What is your income tax due and payable for the 3rd quarter of 2011?
Answers and computation:
|Gross Sales ||P 300,000|
|Add: Share from Gen. Prof. Partnership ||0|
|Less: Cost of Sales ||180,000|
|Gross Income from Operation ||120,000|
|Add: Other Income ||20,000|
|Total Gross Income ||140,000|
|Less: Deductions ||60,000|
|Taxable Income This Quarter ||80,000|
|Add: Taxable Income for the Previous Qtrs ||40,000|
|Taxable Income to Date ||120,000|
|Tax Due  *||18,500|
|Less: Tax Credits/Payments: |
|Tax Paid for the Previous Quarters||1,000|
|Creditable tax withheld for the previous quarters||3,000|
|Creditable tax withheld per BIR form 2307 for this qtr||2,000|
|Tax Payable ||12,500|
|Less Penalties ||0|
|Total Amount Payable ||P 12,500|
* Computation of tax due:
Since P120,000 is under the “over P70,000 but not over P140,000, your tax due is equal to P8,500 + 20% of the Excess of 70,000.
Tax Due = P8,500 + 20% of the Excess over 70,000.
Tax Due = 8,500 + [20% (120,000 – 70,000)]
Tax Due = 8,500 + (20% x 50,000)
Tax Due = 8,500 + 10,000
Tax Due = P18,500
1. The personal and additional exemptions of the taxpayer are only claimed on the computation of annual income tax return..
2. Compensation income need not be reported in the Quarterly Income Tax Return. The same shall be reported in the Annual Income Tax Return only.
Step 2.10. If you are filing consolidated income tax return with your spouse, aggregate your income tax payable.
Step 2.11 Put your signature over your printed name. Also fill the Title/Position of Signatory.
STEP 3: Fill out the details of payment in Part III
How to file the quarterly income tax returns?
The following are the procedure in filing the quarterly income tax returns:
1. Fill-up BIR Form 1701Q in triplicate.
2. If there is payment:
- Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you registered and present the duly accomplished BIR Form 1701 Q, together with the required attachments and your payment.
- In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are registered and present the duly accomplished BIR Form 1701Q, together with the required attachments and your payment.
- Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.
3. For “No Payment” Returns including refundable/ creditable returns with excess tax credit carry over and returns qualified for second installment:
- Proceed to the Revenue District Office where you are registered or to any Tax Filing Center established by the BIR and present the duly accomplished BIR Form 1701Q, together with the required attachments.
- Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative.
Reference: Bureau of Internal Revenue Philippines