|BUSINESS| How to File BIR Form 1701 and Paying Annual Income Tax

What is your yearly responsibility? What's your share in the government? If you are working, it would be your tax that is being withheld by your company. Every year, individuals and enterprises in the Philippines pay their taxes on or before April 15 of the following year.

They can either file it manually or electronically. What is the difference? Manual filing requires them to visit the nearest Revenue District Office (RDO) to submit their Income Tax Returns (ITRs) while Electronic filing, on the other hand, enables them to use an online application to file their ITRs. You just to file it using the application that you need to download from BIR website. There is also an Electronic Filing and Payment System (eFPS) system which is normally being used by big companies or shall I say large tax payers.

Freelancers and small business owners are not exempt from paying taxes.

You need to file and settle your tax forms, especially the BIR form 1701A (note that this is not the ONLY form that you need to file and pay for). The only difference from employees is that you need to file it on your own. This is applicable for persons who are practicing their profession or generating income purely from business.

What is the Annual Income Tax Return (ITR) for?

The Income Tax Return, which is mostly known for the word ITR which refers to the annual tax form that an individual files every April 15th of the following year. This form summarizes all of the income (or loss) an individual incurred during the past year.

In line with the new Tax Reform Laws known as the TRAIN Law, there are now three (3) types of forms available for you to file your annual ITR.

These forms are NEW FORMS that were just recently launched so make sure that you are using this updated form already.

Form 1700 – if you have no other sources of income other than employment income, this is the form that you should use. What you need to do is add all your employment income and deduct all payroll taxes withheld by employer(s), and pay remaining tax due (if there is any). This is used by individuals who had two EMPLOYERS within a year thus, you are not qualified for substituted filing (substituted filing means that the Employer files taxes on your behalf).

Form 1701 – This is a form suitable if you are a mixed income individual, which means you are an employee AND also earning income from a business or side profession (for example: freelance or consultancy work) or 2) if you’ve chosen Graduated Tax rate with an Itemized Deduction Method.

Form 1701A – If you are earning purely business income or income from your profession. This is the form that you need to use. This is a new form released by the BIR for those who chose the Optional Standard Deduction Method (OSD) or opted in for 8% GRT in the previous year.

What is BIR form 1701?

The BIR form 1701 or the Annual Income Tax Return for Self-employed Individuals, Estates and Trusts shows all the transactions covering the calendar year of the taxpayer.

According to the Bureau of Internal Revenue (BIR) this must be filed by the following individuals:

1. A resident citizen engaged in trade, business, or practice of profession within and without the Philippines.

2. A resident alien, non-resident citizen or non-resident alien individual engaged in trade, business or practice of profession within the Philippines.

3. A trustee of a trust, guardian of a minor, executor/administrator of an estate, or any person acting in any fiduciary capacity for any person, where such trust, estate, minor, or person is engaged in trade or business.

4. An individual engaged in trade or business or in the exercise of their profession and receiving compensation income as well.

Simply put, freelancers and sole proprietors are required to pay their income tax return. If your annual income is less than P250,000, you are exempt from paying percentage tax and income tax. Still, you need to file your accomplished BIR form 1701 to the RDO. For those who chose the 8% option, you will need to file the form 1701A.

It is important to be able to learn about the new Tax Law. So, let’s take a look at the new Income Tax Table under the TRAIN Law. Take note that this will be implemented from 2018 to 2022 only. By the year 2023, the rates will change.

If you’re a non-VAT taxpayer who earns less than Php 3 Million annual gross revenue, you have two options with regard to filing your taxes. These are your options:

1. To follow the three (3%) percentage + income tax. The second option is the TRAIN law's new eight percent (8%) Gross Receipt Tax, which is simply multiplying your annual earnings by 8%.

When and where to file and pay you income tax?

The income tax return must be filed and paid on or before April 15 of each year at any BIR-Authorized Agent Bank of the RDO where you registered. Use eBIR or eFPS to file and don’t forget to also file/submit your attachments via the Alphalist system of the BIR. If you forget to submit (assuming you have attachments to submit), this will incur penalties too.

Submit your accomplished BIR forms with the required documents and your payment. The AAB will stamp mark “Received” on the return and will machine validate it as well. The machine validation will show the date of payment, the amount paid, transaction code, the name of the bank, and other important details.

If there are no AABs in your area, you can settle your taxes with the concerned Revenue Collection Officer (RCO) under the jurisdiction of the RDO.

What to do if you missed the deadline of filing?

Please take note that there will be penalties if you were not able to file your taxes on time. Apart from your tax due, you have to pay twenty five percent (25%) of the amount + twenty percent (20%) interest per annum.

In addition, neglecting to file the return will likewise require you to pay for a penalty, which is fifty (50) percent of the tax due. Be ready and prepare it ahead of time so that you don't need hurry beating up the deadline.

Documents needed when submitting your Annual ITR:

Below are the documents that you need to include when you submit and file your Annual ITR.

1. The 2307’s (withheld tax certificates) that you RECEIVED from clients (if any)

2. The 2316’s (tax withheld from compensation) that you RECEIVED from your employer (if applicable)

3. If you exceeded Php 3 Million gross revenue in the year, you also have to provide an audited financial statement:

Please take note to provide three copies because it will be needed during your filing. Make sure that all of the copies will be stamped.

If you don’t have to pay anything, meaning your payable is zero or negative, just submit your annual ITR along with the attachments to your RDO. Just bring your documents to the RDO, and make sure that all the three copies will be stamped with the receiving stamp because this is the proof that you were able to submit it in your RDO.

Then, if you have to pay something, submit your annual ITR along with the attachments to your RDO’s Authorized Agent Bank (AAB). Prepare your payment and submit it along with your forms to the bank.