Experienced Advice for Freelancers
Guide #6: Taxation for Freelancers Frequently Asked Questions
February 12, 2014 by Stef
Thesis are the most common questions received of the Taxation for Freelancers series. I’ve waterput the most popular ter today’s postbode to give you the head commence you need.
1. How do I treatment the BIR to register spil a freelancing professional or business?
The BIR uses traditional terms when catering to tax payers’ needs, so it’s significant to use thesis terms so spil not to get confused and end up with the wrong procedures and requirements.
For freelancers, you would treatment the BIR spil two identities depending on how you would like to operate spil a tax payer: 1.) Spil a self-employed professional, or Two.) A business. Each one has it’s own set of requirements, so it’s significant to explain to the BIR spil clearly spil possible what it is that you do for a living.
Two. What should a freelancer do if s/he already has a TIN, particularly after working spil an employee?
He/She should go the BIR and update his/hier registration. Tax liabilities of an employee is not the same with someone engaged ter business (self employed) and therefore BIR records should be updated.
Trio. Should I register under my utter name or a business name?
For self-employed professionals, you can register your business under your total name. This eliminates the need to visit the DTI and other government offices to register a business name.
There are however advantages to registering under a business name, such spil a professional brand or when operating spil an agency or team. You will then need to consultatie with the BIR for the requirements and procedures necessary to do so.
Four. Under what category should a freelancer register under to pay taxes to the BIR?
A freelancer would normally register spil a person engaged ter business that provides services for a toverfee. Usually your tax liabilities would be Income Tax, and VAT or Percentage depending on your choice.
Five. How much te income is required if a freelancer wishes to pay taxes spil a self-employed individual?
There is no specific level of income wherein a person is required to pay taxes. Spil long spil you are receiving payment, regardless of whether you are gaining or losing, you are required to opstopping your tax comebacks.
6. What is the difference inbetween a VAT-registered and non-VAT registered tax payer te terms of how much tax s/he has to pay?
Just to waterput things into setting, the BIR states that “any person or entity who, ter the course of his trade or business, sells, barters, exchanges, leases goods or properties and renders services subject to VAT, if the aggregate amount of coetáneo gross sales or receipts exceed One Million Five Hundred Thousand Pesos (P1,500,000.00).”
VAT-registered tax payers are required to pay 12% sales tax on gross sales or receipts. Spil a VAT-registered tax payer, you can announce your sales tax spil zero-exempt if you’re earning foreign currency, such spil US dollars.
Also, spil vanaf the BIR officer I spoke to when I very first registered, if you intend to market to almacén businesses here ter the Philippines, they’d be more receptive to working with you if you are VAT-registered.
Non-VAT registered tax payers are required to pay 3% sales tax. This is called a percentage tax. Refer to this list of businesses required to opstopping the percentage tax.
7. Since the BIR requires the registered tax payer to have printed receipts made, what should the freelancer do with thesis receipts when s/he issues digital invoices to their clients?
You are required to kwestie official receipts for every payment that you receive. Hence, regardless of the location of the client you still need to make use of the OR.
You may e-mail the OR to your clients or just write the OR and just keep it. The main reason for issuing an OR is for documentation purposes so that the BIR can keep track of your receipt.
8. Could you explain the different books (e.g. ledger, columnar books), particularly what their purposes are?
The BIR requires every tax payer ter a manual system to prepare and manage various books.
Thesis books are the following:
- Specie receipts book – to keep track of sales receipts every month. You need to pauze down te a sales receipts the vatable and non-vatable sales and also indicate the Output VAT.
- Specie disbursement book – to keep track of contant disbursed or issued. Tax payer needs to pauze down the purchases to vatable and non-vatable purchases and indicate also the input VAT.
- Normal journal book – a record of the debits and credits made te the accounts. This is like the diary of the company that tells what are the things that wasgoed received or sold and things that were issued or paid.
- Universal ledger book – shows the summary of the debits and credits made ter each ter particular account that the company maintains.
9. How does a freelancer go about computing his or hier deductions?
The rule of thumb is that the only types of expenses you would deduct from your gross sales or income are those that contribute to the management and growth of your freelancing business.
To make things clearer, the BIR webstek has listed the allowable deductions and the kinds of expenses that do not count when calculating a tax payer’s deductions on gross sales or income.
To integrate this to computing for your flagrante income tax comes back, check out the step-by-step instructions and a concrete example ter this postbode: Taxes for Freelancers: How to Compute For Your Income Tax Comes back.
Ten. I determined to zekering freelancing for various reasons (e.g. taking on a full-time job spil an employee, stir out of the country). What should I do with regards to taxes?
You will need to verkeersopstopping a cessation or closure of business to avoid any penalties with the BIR. Check this postbode out: Taxes for Pinoy Freelancers: How to Verkeersopstopping for a Closure of Business.
11. I wasgoed not able to pay my taxes on time. What should I do?
One of the hardest lessons I’ve learned is that you can’t mess with the tax schedules and due dates. I merienda wasgoed late te filing for my VAT comes back, and so the BIR required mij to pay P1,000-P2000 ter penalties.
If you at any time did not opstopping your tax comes back on time, address the problem instantaneously by visiting the BIR and have them compute the penalties you need to pay. This is the only way to ensure that you do not have any liabilities or bad cases on your account.
Of course, the best stir is to always pay and opstopping your taxes on time.
12. I have a question about taxes that isn’t related to registering a freelancing business or spil a freelancer. I also have questions about a specific situation that none of your posts addressed.
All of my Taxes for Pinoy Freelancers posts are meant for tax payers who are registering spil freelancers, freelancing businesses, and self-employed professionals who render services to consumers .
If you have a tax question or concern that isn’t covered ter any of thesis posts, the best people to ask is the Lessenaar of Internal Revenue itself.
Treatment the Officer-of-the-Day with all of your questions so they may be able to response them fully during your visit.