Many people take on freelancing thinking it’s a breeze. You get to pursue what you want to do within your comfort zone. You control where, when, and how you work. While freelancing has these perks, there’s one thing that you shouldn’t miss – tax. Yes. The civic duty of paying taxes extends to freelancers, too.
Why should you pay your taxes?
If you’re not even going out to work, why bother paying your taxes? Well for one, taxes are an important part of nation-building. It’s with taxes that the government funds new structures and services for everyone. Did you know that in January 2020, the PSA reported that 26.2% of the total employed population are self-employed, either sole proprietors or freelancers, like you?
That’s a huge chunk of money if all freelancers were to register, file, and pay for taxes! No matter how small that percentage may be, there’s pride in knowing you’re part of your country’s financial growth.
However, many people struggle to find trust in those who spend their taxes and use this as an excuse to not pay their dues.
READ: The Gobear Guide To Understanding Your Income Tax Return
Of course, there’s a consequence for that – tax evasion lawsuits. This is another reason to pay taxes if the first one isn’t enough. If it so happens that you’re caught cheating on taxes by not paying your dues or simply not filing to pay for tax, expect consequences.
These include 2-4 years of jail time and lump payment of taxes including interest and penalties. You can also expect a blow to your credit score and other records that will make it harder for you to apply for loans and bank accounts in the future.
The reality however is that the Bureau of Internal Revenue (BIR) only has limited resources to chase after every single tax evader in the country. They usually go for the big fish that you can see on TV – business owners, conglomerates, entertainment personalities. This doesn’t warrant you to skip on your taxes. The BIR continuously updates their systems towards a more aggressive campaign against tax evasion.
How to register as a taxpayer?
You don’t just walk in a BIR branch and pay your taxes like buying from a sari-sari store. They would need to validate your identity and income first. And unlike the employed who are immediately registered a Tax Identification Number (TIN) and paid their taxes, you will have to do everything you on your own.
What follows is a step-by-step guide to registering as a taxpayer and paying your income tax. You can also visit bir.gov.ph for any updates regarding the process.
1. Secure an Occupational Tax Receipt (OTR) or Professional Tax Receipt (PTR), whichever applies
OTRs are for non-licensed freelancers such as writers and freelance photographers, while PTRs are for licensed professionals like accountants and doctors. You can get this from your local Treasurer’s Office. The requirements for a tax receipt vary between LGUs. Oftentimes, you will need a contract with an existing client, a barangay certificate, maybe even a PSA birth certificate, and a fee around PHP 200.
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2. Obtain/Update your Taxpayer’s Identification Number (TIN)
If you were previously employed, chances are you already have a TIN. The TIN is unique for every Filipino, meaning you can only ever have one TIN issued under your name. If you worked in a different location under a different Revenue District Office (RDO), you will have to go there personally and have your records moved to your current RDO. What you also need to do is update your information with the BIR Form 1905 to self-employed or mixed-income. This also applies for when you have forgotten your TIN, or lost or damaged your TIN ID.
To apply for a TIN, you will need the following documents:
- Accomplished BIR form 1901 version 2018 stating you’re either a self-employed or mixed-income individual
- Government-issued identification that shows your name, address, and birth date
- Registration fee of PHP 500 plus PHP 15 for Documentary Stamp Tax (DST) and PHP 15 for Certification Fee
- BIR Printed Receipts/Invoices or Final & clear sample of Principal Receipts/ Invoices
- Submit these forms to the New Business Registrant counter of the nearest Revenue District Office (RDO).
- Accomplish BIR Payment Form 0605, and pay the required fees of around PHP 530.
- If you are to apply for the authority to print your receipts and invoices, fill out BIR Form 1906 and pay PHP 30 for BIR-printed receipts or invoices. Only BIR can print official receipts that they will acknowledge as proof of payment
- After 2 weeks depending on your RDO, you will be issued the following
- Certificate of Registration (BIR Form 2303)
- Notice to issue an Authority to print receipt or Invoice
- Printed blank receipts or invoices
3. Claim your certificates from your RDO
After step 7, you’re already registered as a self-employed taxpayer with income tax dues and everything. The next steps are all about keeping records of your taxable income and filing and paying for tax. If you opt to register online, you can do so through https://ereg.bir.gov.ph/ but the latter steps will still require your appearance in the RDO.
After registration, what now?
Upon claiming your registration documents and receipts, you will be required to buy 2-4 Journals and a Ledger, each costing around PHP 50. Have these stamped by your RDO? This is what you will use to keep a record of a year’s worth of income.
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The Journal is allotted for daily tracking of income and expenses, while the Ledger is used to summarize Journal contents into quarterly and yearly reports. Important details to note are the amount, source of income or reason for the expense, the transaction date, and the O.R. number if applicable. Remember to keep a copy of all your issued receipts and invoices. Your records will prove useful as proof of stable income when applying for loans, credit cards, and visas.
Once the year is over, the new task is to file your Income Tax Return (ITR) and pay your dues. Here’s what you need to do:
Fill out 3 copies of BIR Form 1701
If you’ll be making payments, go to the Authorized Agent Bank (AAB) of your RDO with the forms and your payment. If you’re not paying, go to your RDO instead. After this, you should receive a stamped copy of your ITR as proof of filing and payment.
You can also file and pay your ITR remotely! Just go to BIR’s Electronic Filing and Payment System (eFPS) and log in with your TIN and a username and password. After confirming your e-mail and registration you can fill out your forms through the same website and pay through accredited banking systems.
Paying for taxes is no fun at all. This is especially true for freelancers who choose their job because of the higher pay from direct transactions than from previous employers.
However, remember that the whole point of paying taxes is not simply to avoid a lawsuit, but to aid the country in which we make a living. It’s a duty passed on to every law-abiding citizen, and that should include you, freelancer!
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