Do you want to maximize tax savings but need help with how to do it? Professional accounting services in the Philippines recommend revisiting your tax planning strategy if you wish to optimize your systems and retain more of your profits. Through tax planning, you can weigh the various tax options you have and know how to conduct your business most beneficially.
Recently, the BIR has been very strong in campaigning to increase tax collections. That’s why you must know how to use and apply the right strategy for your tax planning. Check out the following methods to optimize your tax savings.
- Maximize Allowable Tax Deductions
Tax deductible expenses should be supported with official documents like official receipts and sales invoices. It will require certain documentation such as a board resolution for bad debts and a notification from BIR for any casualty loss. The correct tax must be withheld if you have expenses subject to withholding tax. If not, it will not be allowed for a tax deduction.
If you want to claim itemized deductions, tax services in Manila state that you must utilize the NOLCO or the net operating loss carry-over. State your previous financial statements and your income tax returns properly. You can claim it on a first-in and first-out basis within three years from year of loss.
- Take Advantage of Tax Credits
Your creditable withholding tax certificates will serve as proof of your advance tax payments which are deductible from your annual income taxes. It should always be supported by the BIR Form 2307 or the withholding tax certificate. Ensure your certificates have been secured from your customers
Moreover, you can consider the minimum corporate income tax from your previous years. You can credit it against the normal income tax due. If it is similar to NOLCO, you can claim it within three years.
- Know Who Your Donees Are
If you have made contributions to charity that were accredited to donee institutions, it may be fully deductible under certain conditions. If you claim your charitable contribution as a deduction, remember to submit BIR Form 2322 or a certificate of donation. This form contains the donee certificate and the donor’s values statement. If you have contributions like that, you might be exempted from the donor’s tax which is also subject to certain conditions.
- What Benefits You More: Optional Standard Deduction vs. Itemized Deduction
Optional Standard Deduction refers to a deduction not exceeding 40% of your gross income. Choose this if you have less cost of sales or service. Since it uses a high tax base for the computation, you will have lower income tax due. If you don’t have sufficient proof or documents for your allowable itemized deductions, OSD would be a better option.
Note that your deduction method will be irrevocable for the same taxable year. Here’s why professional tax and accounting services in the Philippines can help you out. They can help you determine which deduction option is the most suitable for your business, helping you spend less on your tax dues.
- What To Do With Excess Income Tax Payments
Decide what you will do with your excess income tax payments. If you have excess income tax payments, you can either choose to carry over your excess credit to the next taxable year or you can get a refund for the excess tax you paid or apply for a tax credit to be issued. If you want a refund, you should consider the cost, amount, and how long it will take to get the refund. Be careful and be aware that if you apply for a refund, you will be exposed to an audit investigation.
- Avoid Paying Tax on Non-Taxable Items
You must avoid taxing items that are non-taxable such as unrealized foreign exchange gains and many more. Check how your items are treated in terms of income in your gross sales/receipts to avoid this.
- Monitor Retained Earnings
If you have unappropriated retained earnings related to your paid-up capitalization, make sure to monitor it to avoid getting penalties. You will be subject to a 10% penalty if your accumulations are not proper and correct.
- Take Advantage of the Tax Treaty Relief
If you have transactions involving tax treaty country residents, you should avail the tax treaty relief. Transactions covered by a tax treaty can avail tax exemption or the preferential tax rate. It requires the TTRA or the tax treaty relief application to confirm your entitlement to the relief. It’s important to file a TTRA to avoid having issues with the BIR.
Tax planning is not a one-time event; it requires constant vigilance and adaptability to remain effective. With the support of tax compliance experts, you can continually assess and refine your tax strategy to align with your business goals and financial objectives. If you need help, touch base with our team of experts. Our proactive approach to tax planning can help you stay ahead of potential pitfalls and seize advantageous tax-saving opportunities as they arise.
Call our accounting services in Pasig so we can help you conduct comprehensive tax reviews of your business operations to identify areas where you may be overpaying taxes or missing out on eligible deductions and credits. Our keen eye for detail can uncover hidden tax-saving possibilities that might have otherwise gone unnoticed.