One of the most important issues for business owners and high-earning individuals is lowering their taxes. Unfortunately, not everyone has access to a financial advisor or consultant who can assist them in achieving this aim.
Fortunately, there are a variety of simple ways to reduce your taxes in the Philippines – all of which are legal. If you’re interested in learning how to do it, we’ve put together this guide for you.
Tax evasion vs. Tax avoidance
Although the terms “tax avoidance” and “tax evasion” are often used interchangeably, they represent two distinct ideas. It’s critical to distinguish between tax avoidance and tax evasion since one is lawful and the other isn’t.
Tax evasion is the lawful use of tactics to reduce your tax liability. Tax evasion, on the other hand, refers to illegal attempts to pay lower income taxes.
The willful misrepresentation of income to pay taxes at a lesser rate, failure to submit tax returns or pay income tax, or failure to comply with any tax rules are all examples of this.
Documents Related to Taxes That You Should Keep
Keep these documents if you want to save money on your taxes.
Receipts and invoices
When you file your income tax returns for the year, you’ll need receipts and invoices to prove your costs.
Tape receipts from the cash register
The information on your cash register tape receipts pertains to your business’s everyday transactions. Make sure you don’t misplace it.
Receipts and statements from credit cards
Maintaining credit card receipts and statements will assist you in correctly reporting both company and personal costs.
Documents proving payment
Keep all of your proof of payment paperwork if you’re filing income tax returns. Receipts, invoices, and money pay-in slips are all examples of this.
Statements of account
Your formal business and personal accounts with financial institutions are listed here. It comprises, among other things, bank account and credit card statements.
In the Philippines, the Best Practices for Lowering Your Taxes
The finest tax preparation tips for decreasing your taxes in the Philippines are listed below.
Be truthful when reporting your earnings and expenses.
Many people try to take advantage of the system. This is, however, illegal and dishonest. The first step in any tax preparation approach is to be truthful about your income and expenses when reporting them to the Internal Revenue Service.
You won’t get into trouble for not paying the right taxes this way. Keeping this in mind, always double-check that your books are in order.
Keep track of all of your costs and earnings.
If you can’t prove that you paid for the expenses, the Bureau of Internal Revenue (BIR) won’t accept them. It’s critical to maintain track of your earnings and expenses to ensure that you pay the correct amount of taxes.
To make filing your taxes easier, keep and maintain your financial documentation.
If you want to make filing your taxes as simple as possible, you must first ensure that you are well-organized.
Make it a practice to arrange your invoices, receipts, credit card statements, and other financial papers to make filing your taxes easier. Without these documents, you will almost certainly be unable to file your taxes.
To make accounting easier, use applications and programs.
You need to be on top of your finances whether you’re an entrepreneur or not. This is especially true if you wish to save money on taxes.
There are numerous tools, programs, and templates available to assist you in making accounting easier. These apps may assist you in a variety of ways, including keeping track of all of your costs and income, managing your finances, and even filing your taxes.
Consider hiring a service to handle your tax-related responsibilities.
Managing tax-related responsibilities might be overwhelming for a single person. Consider outsourcing some of your tax-related activities if you don’t have the time or resources to do everything yourself.
Consider hiring a financial expert who can provide you with one-on-one advice on how to save money on taxes. If you’re looking for a more economical option, we recommend Taxumo, a completely automated accounting software that allows you to file your taxes in minutes.
Optional Standard Deduction is something to think about.
You have the option of claiming the standard deduction when completing your income tax returns. For OSD purposes, you can claim that 40% of your income is a cost. As a result, just 60% of your earnings are taxable.
One of the biggest advantages of employing OSD is that you don’t have to file audited financial statements.
To be eligible for a deduction, you must report any company losses to the BIR.
Make sure to record any losses incurred if you want to maintain all of your income tax deductions. Make certain, however, that the losses are:
- Trade, business, or profession-related
- Transactions that have been closed and completed attest to this.
- Throughout the year, sustained and written off
- Insurance didn’t cover it.
You Should Avoid These Tax Infractions
Ignorance of the law is not an excuse when it comes to taxes.
Many people believe that if they do not understand tax regulations, they will not be fined. Even if you are found to have broken tax regulations, the Bureau of Internal Revenue can prosecute you.
Here are some tax blunders to stay away from.
- Keeping two ledger books
- Under-reporting income on purpose
- Falsifying entries in your accounting books is a serious offense.
- Adding a business expense to a personal expense
- To avoid tax reporting, revenue is redirected to other accounts.
- Illegal transactions are being utilized as a tax haven.
- Tax deadlines that were missed
Tax cuts diminish government revenues in the short term, resulting in a budget deficit or a rise in sovereign debt. Spending cuts would be a natural countermeasure. Critics of tax cuts, on the other hand, would say that the tax cut benefits the wealthy at the expense of others with fewer resources because the services that would be cut are likely to benefit individuals in lower-income brackets.
Proponents say that by putting money back in consumers’ pockets, consumption will increase, resulting in an increase in the economy and wage growth. At the end of the day, the outcome is determined by the location of the cuts.