Another tax season is about to wrap up.
April 15 (Monday) marks the last day for filing the annual income tax return (ITR) for individuals who are self-employed or did not qualify for substituted filing, and corporate taxpayers that operate on a calendar year basis.
By now, a few days before April 15, some taxpayers may have completed their ITRs and tax payments while some are scrambling to beat the deadline. While it is critical to be on time when it comes to tax filings, there’s no need to go into a frenzy. Before filing your ITRs (and perhaps even those who have already filed their returns), step back and take a look at the following last-minute notes.
USE THE CORRECT BIR FORM AND FILING METHOD
In line with the Tax Reform for Acceleration and Inclusion (TRAIN) law and ease of doing business initiatives, the Bureau of Internal Revenue (BIR) has simplified the ITR forms by reducing and/or consolidating the information required to be reported by a taxpayer. While the BIR has released the new ITR forms, the electronic version of some of these returns are not yet available online. Thus, taxpayers would have to follow the workaround procedures set by the BIR in the meantime.
Updated versions of BIR Form Nos. 1702-RT (for regular corporate taxpayers), 1702-MX (for corporation subject to multiple or special rates), and 1702-EX (for tax-exempt corporations) are already available in the BIR website, but, as of this writing, not yet available in the Offline Electronic Bureau of Internal Revenue Forms (eBIRForms) and Electronic Filing and Payment System (eFPS). Thus, eBIRForms and eFPS filers are directed to use the existing old versions in filing their returns.
However, for corporations who are under multiple or special tax regimes and who elected to use the optional standard deduction (OSD) as a method of deduction in the first quarter, manual returns should be used in filing and paying the income tax due.
BIR Form No. 1701A is to be used by individuals who opted to avail of the 8% flat income tax rate, or who are earning income solely from businesses or professions and are under the graduated income tax regime with OSD as mode of deduction. This form is available in the BIR website and eBIRForms only. Hence, eFPS filers are advised to use the eBIRForms. In case the eFPS filers have already filed and paid the income tax due for 2018 using the old return (BIR Form No. 1701), the taxpayer is required to submit an amended return using the new form. If tax was paid using the old return, the amount paid must be indicated in the amended return.
Individuals with mixed income, or earning income purely from businesses and professions and availing of the itemized deduction, are to use BIR Form No. 1701. Although the BIR announced in Revenue Memorandum Circular 37-2019 that BIR Form No. 1701 must be manually filed because the electronic version is not yet available, notably the said form is already included in the latest eBIRForms package version 7.4.1. As of this writing, however, the BIR has not yet clarified whether eFPS filers should file using the eBIRForms. Be that as it may, unless there are technical issues in using the eBIRForms, it is reasonable for the eFPS filers to use the eBIRForms.
Finally, for individuals earning purely compensation income who do not qualify for substituted filing, they must manually file using the new BIR Form No. 1700.
FOLLOW THE RULES ON DEDUCTIBILITY OF EXPENSES
For expenses to be validly claimed as deductions, they must be (i) ordinary and necessary; (ii) paid or incurred during the taxable year; (iii) paid or incurred in carrying out the trade or business or practicing the profession of the taxpayer; (iv) supported by official receipts or other adequate records; (v) not against law, morals, public policy or public order; and (vi) properly subjected to the applicable withholding tax. Be mindful also of the limitations on deductible expenses such as interest expense, charitable contributions and representation expenses.
GO THROUGH YOUR RECONCILING ITEMS
The reconciliation of accounting and taxable income is one of the common areas scrutinized by the BIR during a tax audit. To avoid unnecessary issues, review the reconciling items and identify whether you are applying the correct tax treatment. For example, written-off accounts are deductible, but not mere provisions for bad debts. Unrealized forex gains and losses are treated as non-taxable and non-deductible items, respectively. Deficiency taxes, surcharge, and compromise penalty paid to settle an assessment cannot be deducted for income tax purposes.
CONSIDER YOUR NET OPERATING LOSSES CARRYOVER AND EXCESS MINIMUM CORPORATE INCOME TAX (MCIT)
In general, net operating losses which have not been previously offset as a deduction from gross income are to be carried over as a deduction from gross income for the next three consecutive taxable years immediately following the year of such loss. Any excess MCIT over the normal income tax (NIT) may be carried over to the three succeeding taxable years and credited against NIT due.
GATHER YOUR WITHHOLDING TAX CERTIFICATES
Taxes withheld by the employer or customers are allowed to be utilized as tax credit by the income recipient provided it is fully substantiated with correct certificates (BIR Form 2316 or BIR Form 2307) that cover income earned during the same taxable year.
BE CAUTIOUS WHEN FILLING UP THE RETURN
Beware also of sliding or transposition errors. Although the eBIRForms/eFPS automatically perform mathematical functions and calculate the taxes due, they will not alert you if you have entered numbers incorrectly. Double-check your return and have another pair of eyes review it for same measure.
Most of us are probably anxious to submit the ITRs on April 15. However, let’s maintain caution and be mindful of the tax rules that we need to comply with so we can close this tax season right. In this sweltering heat, I’m sure no one wants to spend the upcoming holidays in distress and with regret over tax issues.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Donabel M. Villegas is a senior consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
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