12 Tips for a Smooth Annual ITR Filing in the Philippines

The deadline of regular annual income tax return filing in the Philippines is April 15. Business owners, accountants, bookkeepers, auditors and the tax authorities will begin to feel the tax season’s breeze in the coming months. Although it’s still a quarter of a year away from now, it’s wise to prepare early to avoid cramming.

Indeed tax is a burden. But though an income tax due seems to be an encumbrance, it’s also a sign that a business is making income or profit. Well, we don’t pay income tax payable if we have a taxable loss. But whether you have a tax payable or not, you may still be required to file your income tax return with the government or the Bureau of Internal Revenue (BIR).

To guide you on the filing of your business’ annual Income Tax Return (ITR), here are 12 tips to make it nice and smooth.

1. Prepare early.
The outcome of your ITR filing will depend on your preparation. If you prepare early, you can file early. On the other hand, late preparation results to late filing. Accounting is a step by step process and has a domino effect. If you can close your book early, your accountant can make your financial statements early, and your external auditor can also examine that FS early for submission to different government agencies, including the BIR.

2. Hire the right accountant.
Accountants and bookkeepers do a crucial job in the preparation of your financial statements and filing of your tax declarations. They must not only be professionally competent but also trustworthy to avoid fraud from happening inside your organization. Thus, find an accountant, whether in-house or outsourced, who has the right professional qualifications and positive testimonials from previous employers or clients.

3. Choose the right independent auditor.
If your financial statements are required to be audited by an external auditor, choose the one who’s accredited by the BIR, Securities and Exchange Commission (for corporations), and other agencies required for other types of businesses (e.g., a BSP accredited auditor for financing companies or an Insurance Commission accredited auditor for insurance companies).

Aside from the accreditation of your prospective auditors, you should also consider their competence, manpower, timing and testimonials from previous and current clients to ensure that they can provide an effective and efficient auditing service to your company.

4. Organize your financial records.
Even though you have a bookkeeper or an accountant, they don’t produce all your financial records, particularly your business source documents, such as the invoices from your business travel expenses and various purchases made by your employees. These documents must be presented to your accountant on time for recording, summarizing and financial reporting. In other words, everyone in your company should help and cooperate with your accountant to make the accounting process and taxation more efficient.

5. Tally your actual records to your tax declarations.
Avoid tax violations by ensuring that your source documents, books of accounts, and other accounting records are matched to your BIR declarations. For example, your sales, purchases and expenses recorded in your books should be reconciled with the sales, purchases and expenses declared in your income tax, VAT or percentage tax returns. This will not only make your ITR preparation easier but will also give you and your accountant a good night’s sleep.

6. Reconcile all your BIR declarations.
All the tax returns or declarations you file to the BIR can be used against you. They can use them as evidence during tax assessment or investigation. Hence, you must see to it that all your declarations are matched and reconciled. The following documents should be reconciled to each other:

– The sales/revenues/receipts declared in VAT or Percentage Tax returns vs. the sales/revenues/receipts to be reported in the ITR.
– The purchases/expenses declared in VAT returns vs. the purchases/expenses to be reported in the ITR.
– The salaries and wages declared in withholding tax on compensation returns vs. the salaries and wages to be reported in the ITR.
– The amounts of rent, professional fees, advertising fees and other expenses declared in the expanded withholding tax returns vs. the amounts to be reported in the ITR.
– The inventory reported in the inventory list vs. the inventory to be reported in the ITR or its attached financial statements.

7. Tally all your reports submitted to various government agencies.
Businesses submit reportorial requirements to different government agencies, including the BIR, SEC, Mayor’s Office, SSS, PhilHealth and Pag-Ibig Fund. The BIR also utilizes the documents submitted by taxpayers to other agencies during assessments. For example, the BIR reconciles the gross sales reported by a taxpayer in his ITR versus the gross sales reported to the Mayor’s Office. They also match the salaries declared in the ITR versus the salaries of employees reported to SSS, PhilHealth and Pag-Ibig Fund.

8. Use the correct BIR Forms.
Taxpayers who are mandated to use eFPS shall use the eFPS facility for the filing and payment of ITRs. For Non-eFPS taxpayers, the use of eBIR Forms is mandatory to all No-eFPS filers particularly Accredited Tax Agents/Practitioners (and all their respective client-taxpayers), Accredited Printers of Principal and Supplementary Receipts/Invoices, One-time Transaction (ONETT) Taxpayers and others who are covered by Revenue Regulations (RR) No. 6-2014. Using the eBIRForm is actually efficient, as it automatically computes and validates the information entered by a taxpayer in the electronic form.

Related articles:
How to File Tax Returns Online in the Philippines
How to Register with the BIR eFPS (eFiling and Payment System)

9. Complete your attachments.
A complete ITR has complete attachments, which may include audited financial statements, notes to financial statements, auditor’s report, statement of management responsibility, certificate of withholding taxes, proof of previous income tax payments credited against the current tax due, and other attachments required by the BIR.

10. Have a final check and review.
As the owner, manager, or head of a business, you should not just rely on the work of your accountant and auditor. You may not be an expert in accounting, tax and auditing, but you’re the captain of the business and you know it more than anyone else does. Many errors could still be committed on the final stage of making the financial statements and ITR if a thorough review will not be conducted by the management. Therefore, don’t skip the polishing part and final touch of making your FS and ITR.

11. Build a tax fund.
Preparing your ITR and all the required documents is one thing. Having the money to pay your tax due is another thing. Your ITR may now be complete and ready to be filed, but you may not be ready to pay because cash is not yet available. Many business owners suffer from this scenario because they aren’t enthusiastic in fulfilling their tax obligations – they don’t save money for paying their future tax liabilities. To avoid that nightmare, build a tax fund so you will always be ready to not only file your ITR but also pay its tax due.

12. File and pay early. This does not need any further explanation.

The tax season may be a hassle but if you comply, act early, and settle your tax obligations on time, you can avoid penalties and more hassles in the future. Moreover, an enjoyable summer awaits every one of us. Therefore, get your ITR done early to savor the full fun of your vacation.

Disclaimer: New and subsequent tax rulings, issuances and or laws in the future may render the whole or part of the article obsolete or inaccurate. This article was published for informational use only and is not provided to serve as legal, tax, or investment advice.