1. Identify which income bracket you fall under
To know how much tax you need to pay, you must first identify your income bracket.
People who have an annual sale or professional fees that do not exceed P250,000 a year will not be paying any tax. But if you belong to this bracket, you still need to file an ITR or Income Tax Return.
If you earn an annual income of P250,000 but do not exceed the VAT threshold of P3,000,000, you have the option to pay 8% of income tax from your gross sales and other non-operating income or pay the graduated tax rates. People who can avail of the 8% income tax regime are those who earn from businesses or professional fees.
2. Determine your business structure
Besides knowing your income bracket, you also need to identify the business structure you have to register for. For freelancers, it can either be a professional or sole proprietor.
A sole proprietorship is a type of unincorporated business owned and controlled by only one person. In this case, the owner pays personal income tax on the profits earned. You can register through the Bureau of Trade Regulation and Consumer Protection under the Department of Trade and Industry.
If you own a small business, you can register it under sole proprietorship.
Meanwhile, professionals are self-employed individuals who earn money by practicing their profession with or without a license. This includes lawyers, private physicians, graphic designers, photographers, and other workers on a pay-per-service basis.
If you’re only getting paid through the services you provide sans the benefits of being employed, then you can register as a professional.
3. Know the first steps
Now that you’ve established your business’s identity, you can begin to familiarize yourself with the requirements and steps to take before paying taxes. For a complete list, you can visit the BIR website.
The first thing to do is to fill out the BIR Form 1901 or Application for Registration and submit it together with the documentary requirements to the Regional/District Offices (RDO) near you. If you already have a Tax Identification Number, you should fill out the BIR Form 1905 or Application for Registration Information Update.
After that, you’ll pay the annual registration fee of P500 at the New Business Registrant Counter in the BIR Office. You will also pay for the certification fee and documentary stamp tax worth P15 each.
The RDO will then issue the Certificate of Registration (Form 2302), including the Notice to Issue Receipt, Authority to Print, and BIR Printed Invoices. You can register your books of accounts to the same RDO you registered at.
4. Get help from professionals
If you don’t want to burden yourself with managing taxes, you can consider getting help from professionals.
It may be manageable at first, but if your financial status often changes and your services and business continue to grow, you may opt to look for an accountant adept in freelance tax regulations. Remember that every transaction matter, so if you can’t keep up with your receipts, then it’s okay to ask for an expert’s help.
5. Plan for your future!
As a freelancer, you won’t have access to government-mandated benefits, HMO, and other benefits from being a regular employee. It’s essential to take action and look at investment options yourself. To help you out, BPI AIA offers affordable health insurance plans to safeguard your health.