2014 Annual Income Tax Return Reminders Philippines

Annual income tax return filing not later than April 2015 for 2014 calendar is fast approaching. Early preparation is best encouraged for a better tax compliance and management. As the saying in the movie, “The Mechanic” goes:

“Victory loves preparation.”

Listed below are some items we suggest you to take into account for the April 2015 filing of income tax return and audited financial statements in the Philippines:

Use of new Income Tax Returns in Philippines

For April 2015, June 2013 2011 versions of income tax returns are required to be used, both for manual filing, eBIR Forms filing (eBIR Forms) and electronic filing and payment system (EFPS). Please note of the following new things  on said forms:

BIR Form No. 1701 for self-employed individuals, professionals and freelancers

• Required information in all capital letters using black ink;
• A 12-page annual income tax return requiring more information;
• Details on external auditor/tax agent, if applicable;
• Spouse details for consolidation of returns;
• Schedule of itemized deductions – regular, and special;
• Balance Sheet or Statement of Financial Condition details;
• Supplemental information at the back of the income tax return. For transparency purposes, new annual income tax returns for individuals require disclosure of other income not subject to 5-32% income tax rates such as capital gains subjected to capital gains tax, passive income subjected to final withholding tax, exempt income, and etc. Please to Page 11 of the return and in completing the form, it may require you some details and information that may take you time to provide;
• Supplemental notes to financial statements under Revenue Regulations No. 15-2010 and Revenue Memorandum Orders No. 19-2011. Under the new forms, certain schedules are restored, instead of previously being required on the financial statements;

BIR ITR Form No. 1702 for corporations

• Use of proper BIR Form No. 1702-R for regular corporate income taxpayers, BIR Form No. 1702-EX for exempt corporations, or BIR Form No. 1702-MX for corporation with mixed tax regimes;
• Required information in all capital letters using black ink;
• Details on external auditor/tax agent;
• Spouse details for consolidation of returns;
• Schedule of itemized deductions – regular, and special;
•  Balance Sheet or Statement of Financial Condition details;
• Supplemental information in Schedule 9;
• Supplemental notes to financial statements under Revenue Regulations No. 15-2010 and Revenue Memorandum Orders No. 19-2011. Under the new forms, certain schedules are deleted, and instead, required them on the financial statements.;
• For those with special tax benefits, details on such benefits and comparison with tax implications as if the corporate taxpayer is under normal corporate income tax of 30%

Taxable income items

At this early, check on the components of the gross sales or gross receipts in relation to the . See to it that indeed they are taxable to avoid paying tax on items not yet subject to income tax like unrealized foreign exchange gains. These items are normally under other income. Read more on…Overview of Corporate Income Taxation.

Deductible expenses and supporting documents

As a rule, allowable deductions are ordinary and necessary business expenses and would tend to lower down income tax liability. No specific enumeration has been provided for as long as they were incurred in the conduct of trade or business  and complies the following basic requirements for deductibility:

• Must be supported with documents such as official receipts, and sales invoices;
• Must be withheld, if subject to withholding tax;
• Not contrary to law, public morals, policy or order.

 Creditable withholding tax certificates – BIR Form No. 2307

Creditable withholding tax certificates are advance income tax payments so that every peso withheld is a peso tax credits deductible from annual income taxes. Claims of withholding tax credits should be supported by certificates (BIR Form No. 2307) issued by clients or customers. As such, it might be a good move to summarize income subjected to creditable withholding taxes and the related certificates. If the clients or customers had not provided the certificates, then, this maybe the best early time to remind them to issue one for the amounts they withheld.

Tax planning 

Perhaps at this time (after the third quarter), the taxpayers may already have an estimate of its tax position at the end of 2012. Based on its tax position and its income tax component, it may be worth a while to re employ tax planning strategies. One some expenses might be deductible at year end, so taking serious thought about it and documenting them would be good. Here are some examples of year-end expenses:

• Accrual of salaries, bonuses, and other forms of compensation. Note however, that this would require a withholding tax to be deductible;
• Bad debts for worthless accounts based on supporting documents;
• Making charitable contributions to accredited donee institutions for full deductible donations

In applying the above, you might need the help of a professional for an effective and efficient implementation.

Improperly accumulated earnings tax (IAET)

Another most common errors of taxpayers is on the level of free retained earnings in relation to paid-up capitalization. Under Section 43 of the Corporation Code, unappropriated retained earnings are not allowed to exceed paid-up capital. Revised Securities Regulation Code requires a note to the audited financial statements with a concrete plan on the excess retained earnings. Section 29 of the Tax Code imposes a 10% penalty tax on improper accumulations so that a double check on the level of free retained earnings at the end of the year is highly recommended to determine implications and avoid the penalties. Read more on…Overview of 10% IAET in the Philippines.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at 

in**@ta************.org











.