Being self-employed in the Philippines has its numerous benefits. For one thing, you own your time and can manage and tailor your schedule to your liking. Additionally, you no longer have to deal with temperamental co-workers and pander to a domineering boss. In this instance, you are your own boss! However, while this is wonderful in ways that it allows you to have free reign over your work and time management, it also requires a lot in terms of responsibility.
For one, as a self-employed individual, you will have to manage your taxes. This includes everything from being on top of your financial statements to filing your tax returns. In order to accomplish the latter, you must be cognizant of not only the tax payments you will need to make and the fees that will apply to you, but also the applicable tax deductions and tax benefits. It would help to seek professional tax and accounting services in the Philippines. But even if you hire the pros, knowing these things will give you an easier time come tax season. It will also help prevent you from paying more than needed.
Criteria for Tax Deductibility
Deductions can only be made on things that are ordinary and necessary in carrying out the daily operations of the business. Additionally, the amount must be reasonable and proof must be presented to substantiate the amount.
The optional standard deduction is also an alternative for self-employed individuals. Here, you can deduct 40% of your annual gross income.
Deciding whether to use Optional Standard Deduction or to go for Itemized deduction will depend on your computations. In some instances, Itemized deductions are less than 40%, leaving you with higher taxes to pay. In this case, it would be best to opt for Optional Standard Deduction. However, in other cases, your itemized deductions may amount to over 40%. In this scenario, it is best to opt for Itemized Deductions.
To make your computations and assessment, you just need to list and total all your allowable itemized deductions and weigh that against the Optional Standard Deduction of 40%. This can be done on your own; however, if you need any additional help, it is advised that you seek out professional help by taking advantage of reputable tax and audit services in the Philippines.
Allowable Itemized Deductions
The following are considered an allowable deduction from your itemized deductions. This includes:
1. Salaries and Wages
Your wages and the salaries of any other staff you may have are considered deductible, as the labor that salaries are compensating are needed for the daily operations of the business.
Rental of equipment, machinery, cars, property, and plant are allowable as these are needed for the ordinary conduct of the business or of your operation.
3. Communication Expenses
This includes wifi and phone communication services that are essential to running your operations. It may include your mobile phone and those you assign to your staff.
4. Office Supplies
Office supplies include office equipment like computers and printers and daily needs, like paper, pens, printer ink, etc.
5. Travel expenses
If the nature of your career requires you to travel, these travel expenses do qualify as allowable deductions, provided that receipts may be presented for substantiation.
6. Gas and Toll Fees
Gas and toll fees that are paid for during work commutes do fall under allowable deductibles.
7. Health Insurance Deduction
The premiums you pay for health insurance policies may be deducted.
Meals taken during the course of work, team dinners, or team meals are also tax deductible.
Keeping Supporting Evidence
The key is keeping track of all your receipts, so you may need expert tax and accounting services in Pasig to help you. Bear in mind, tax filing is not all that hard once you get the basics down. Additionally, paying your taxes is not that heavy once you factor in your deductibles. It may sound like there is a lot to it, but as long as you adhere to the criteria for tax deductibility, it will be easy to weed out the things that you can deduct. However, you must also be vigilant in documenting transactions because you need to present the correct supporting documents like official receipts to the BIR.
There are numerous benefits to being self-employed and having the ability to weigh options and to pick Optional Standard Deduction is one of them. If you need any additional assistance, do not hesitate to reach out to professionals. There are numerous online accounting software that may assist you. Additionally, if you have the budget, there are a lot more benefits to hiring a professional accountant and tax services in Manila. Call our team of Certified Public Accountants to take advantage of our free 30-minute consultation.