For taxpayers, however, the end of Lent marks the start of the preparation -- and later, the submission -- of income tax returns.
We recall that in November 2011 the Bureau of Internal Revenue (BIR) mandated taxpayers to use the enhanced annual income tax returns (ITR) for individuals and estates and trusts (BIR Form 1701), and non-individual tax payers (BIR Form 1702). Many taxpayers complained of difficulty in filling out the forms.
After more than a year, the BIR issued a primer to serve as guide on how to properly accomplish BIR Forms 1701 and 1702.
The following are the general instructions:
1. All applicable spaces must be filled in.
2. All information required must be written in capitals.
3. Mark with “X” all applicable circles.
It is worth noting that the taxpayer may be held liable for erroneous or incorrect information and will be penalized with tax deficiency payment or penalty on future assessments or even denial of tax claims. Hence, it is also a good point the BIR did not only list the procedures in filling the forms, but also provided a line-by-line explanation of each item, supporting details and certain rules. Taxpayers should be mindful of certain relevant items as follows:
METHOD OF DEDUCTION
The BIR has reiterated that the taxpayer choose one of two methods of deduction in the first quarter of the year and shall consistently use this method throughout the year:
1. itemized deduction
2. optional standard deduction (OSD) or the standard deduction of an amount not exceeding 40% of gross income for corporations and 40% of gross sales/receipts/revenues/fees for individuals.
In the event a taxpayer fails to avail of one of the two methods of deduction in their first quarter ITR or file the quarterly ITR for the first quarter, he or she shall be assigned with the itemized deduction method.
Moreover, the choice between OSD or itemized deduction is irrevocable for the taxable year and such irrevocability is not affected by any amendment by the taxpayer of his first quarter ITR.
Hence, for the filing to be made on or before April 15, the taxpayer shall have no choice but to consistently apply the choice made in the first quarter ITR. Thus, for final income tax return for 2013 that will be filed on 2014, it is important that at this early stage, one shall have decided between itemized deductions and OSD through careful analysis of forecasted cost and revenues and overall review of one’s projected business operations for 2013.
OVERPAYMENT
Generally, taxpayers opt to carry over the excess tax credits/payments in the quarters of the succeeding taxable years. Alternatively, the taxpayer may also opt for the excess be refunded or issued with the tax credit certificate (TCC).
Once the taxpayer signifies his intention to carry over and apply the excess income tax against income tax due for the succeeding taxable year, no application for cash refund or issuance of a TCC shall be allowed. In case the taxpayer fails to signify his/her choice, the excess payment shall be automatically carried over to the next taxable period.
In Court of Tax Appeals (CTA) Case No. 8083, the Court had the opportunity again to discuss the application of the irrevocability rule on the disposition of excess income taxes as cited in the ITR primer.
In the said case, petitioner ticked the box “to be issued a tax credit certificate” in its 2004 income tax return, which was filed on April 15, 2005. Subsequently, in 2007 it filed with the BIR a claim for issuance of TCC of excess creditable withholding tax for the year 2004. The Court, however, noted that the company carried over its excess credits in 2004 to the three quarters of 2005 as well as in the annual income tax return for the year, hence, the denial of the claim.
It is important that taxpayers decide on what to do with their excess income tax. In case he or she opts to be refunded or issued a tax credit certificate, he or she should also weigh the cost and benefit of applying the tax refund/credit certificate.
With the BIR further deferring to taxable year 2013 the requirement for individuals to disclose their other income in the enhanced BIR ITR (BIR Forms 1700 and 1701), individual taxpayers are advised to keep evidence or records of their tax-exempt income and income subject to final withholding tax such as interest income, fringe benefits, property acquired by gift or bequest, etc. in 2013 to ensure compliance with the disclosure requirements.
In addition to the guidelines in accomplishing the forms, the BIR has listed the necessary attachments:
1. statement of management’s responsibility (SMR) for annual income tax return;
2. regular allowable itemized deductions as mandatory attachment to BIR Form 1701/1702 (this may not be submitted if the taxpayer opted for OSD);
3. certificate of independent CPA and financial statements (FS)
4. schedules that must be part of the notes to the audited FS such as sales/receipts/fees, cost of sales/services, non-operating and other taxable income, etc.; and
5. proof of taxes withheld or tax credits such as Certificate of Income Tax Withheld on Compensation (BIR Form 2316) and Certificate of Creditable Tax Withheld at Source (BIR Form 2307).
Lastly, to encourage taxpayers to submit the required attachments, the BIR reiterated it will slap a fine of not more than P25,000 in a calendar year for non-submission or incomplete submission of the attachments.
Such meager fine must not be taken by taxpayers as reason to neglect the submission of required attachments because the information in attachments not submitted may be critical during BIR assessments.
With the issuance of the primer, the BIR has emphasized the importance of the information in the ITRs. Accordingly, taxpayers are expected to be proficient in the preparation of ITRs to minimize, if not avoid, tax penalties and future BIR assessments.
Ms. Fawagan is a tax senior with Punongbayan & Araullo’s (P&A) Tax Advisory and Compliance Division. P&A is a leading audit, tax and an advisory service firm and is the Philippine member of Grant Thornton International Ltd. For comments and inquiries please e-mail MarieFe.Fawagan@ph.gt.com or call 886-5511.
We recall
that in November 2011 the Bureau of Internal Revenue (BIR) mandated
taxpayers to use the enhanced annual income tax returns (ITR) for
individuals and estates and trusts (BIR Form 1701), and non-individual
tax payers (BIR Form 1702). Many taxpayers complained of difficulty in
filling out the forms.
After more than a year, the BIR issued a primer to serve as guide on how to properly accomplish BIR Forms 1701 and 1702.
The following are the general instructions:
1. All applicable spaces must be filled in.
2. All information required must be written in capitals.
3. Mark with “X” all applicable circles.
It is worth noting that the taxpayer may be held liable for erroneous or incorrect information and will be penalized with tax deficiency payment or penalty on future assessments or even denial of tax claims. Hence, it is also a good point the BIR did not only list the procedures in filling the forms, but also provided a line-by-line explanation of each item, supporting details and certain rules. Taxpayers should be mindful of certain relevant items as follows:
METHOD OF DEDUCTION
The BIR has reiterated that the taxpayer choose one of two methods of deduction in the first quarter of the year and shall consistently use this method throughout the year:
1. itemized deduction
2. optional standard deduction (OSD) or the standard deduction of an amount not exceeding 40% of gross income for corporations and 40% of gross sales/receipts/revenues/fees for individuals.
In the event a taxpayer fails to avail of one of the two methods of deduction in their first quarter ITR or file the quarterly ITR for the first quarter, he or she shall be assigned with the itemized deduction method.
Moreover, the choice between OSD or itemized deduction is irrevocable for the taxable year and such irrevocability is not affected by any amendment by the taxpayer of his first quarter ITR.
Hence, for the filing to be made on or before April 15, the taxpayer shall have no choice but to consistently apply the choice made in the first quarter ITR. Thus, for final income tax return for 2013 that will be filed on 2014, it is important that at this early stage, one shall have decided between itemized deductions and OSD through careful analysis of forecasted cost and revenues and overall review of one’s projected business operations for 2013.
OVERPAYMENT
Generally, taxpayers opt to carry over the excess tax credits/payments in the quarters of the succeeding taxable years. Alternatively, the taxpayer may also opt for the excess be refunded or issued with the tax credit certificate (TCC).
Once the taxpayer signifies his intention to carry over and apply the excess income tax against income tax due for the succeeding taxable year, no application for cash refund or issuance of a TCC shall be allowed. In case the taxpayer fails to signify his/her choice, the excess payment shall be automatically carried over to the next taxable period.
In Court of Tax Appeals (CTA) Case No. 8083, the Court had the opportunity again to discuss the application of the irrevocability rule on the disposition of excess income taxes as cited in the ITR primer.
In the said case, petitioner ticked the box “to be issued a tax credit certificate” in its 2004 income tax return, which was filed on April 15, 2005. Subsequently, in 2007 it filed with the BIR a claim for issuance of TCC of excess creditable withholding tax for the year 2004. The Court, however, noted that the company carried over its excess credits in 2004 to the three quarters of 2005 as well as in the annual income tax return for the year, hence, the denial of the claim.
It is important that taxpayers decide on what to do with their excess income tax. In case he or she opts to be refunded or issued a tax credit certificate, he or she should also weigh the cost and benefit of applying the tax refund/credit certificate.
With the BIR further deferring to taxable year 2013 the requirement for individuals to disclose their other income in the enhanced BIR ITR (BIR Forms 1700 and 1701), individual taxpayers are advised to keep evidence or records of their tax-exempt income and income subject to final withholding tax such as interest income, fringe benefits, property acquired by gift or bequest, etc. in 2013 to ensure compliance with the disclosure requirements.
In addition to the guidelines in accomplishing the forms, the BIR has listed the necessary attachments:
1. statement of management’s responsibility (SMR) for annual income tax return;
2. regular allowable itemized deductions as mandatory attachment to BIR Form 1701/1702 (this may not be submitted if the taxpayer opted for OSD);
3. certificate of independent CPA and financial statements (FS)
4. schedules that must be part of the notes to the audited FS such as sales/receipts/fees, cost of sales/services, non-operating and other taxable income, etc.; and
5. proof of taxes withheld or tax credits such as Certificate of Income Tax Withheld on Compensation (BIR Form 2316) and Certificate of Creditable Tax Withheld at Source (BIR Form 2307).
Lastly, to encourage taxpayers to submit the required attachments, the BIR reiterated it will slap a fine of not more than P25,000 in a calendar year for non-submission or incomplete submission of the attachments.
Such meager fine must not be taken by taxpayers as reason to neglect the submission of required attachments because the information in attachments not submitted may be critical during BIR assessments.
With the issuance of the primer, the BIR has emphasized the importance of the information in the ITRs. Accordingly, taxpayers are expected to be proficient in the preparation of ITRs to minimize, if not avoid, tax penalties and future BIR assessments.
Ms. Fawagan is a tax senior with Punongbayan & Araullo’s (P&A) Tax Advisory and Compliance Division. P&A is a leading audit, tax and an advisory service firm and is the Philippine member of Grant Thornton International Ltd. For comments and inquiries please e-mail MarieFe.Fawagan@ph.gt.com or call 886-5511. - See more at: http://www.bworldonline.com/content.php?section=Economy&title=Income-tax-return-primers-released&id=67994#sthash.c6FY4KCp.dpuf
After more than a year, the BIR issued a primer to serve as guide on how to properly accomplish BIR Forms 1701 and 1702.
The following are the general instructions:
1. All applicable spaces must be filled in.
2. All information required must be written in capitals.
3. Mark with “X” all applicable circles.
It is worth noting that the taxpayer may be held liable for erroneous or incorrect information and will be penalized with tax deficiency payment or penalty on future assessments or even denial of tax claims. Hence, it is also a good point the BIR did not only list the procedures in filling the forms, but also provided a line-by-line explanation of each item, supporting details and certain rules. Taxpayers should be mindful of certain relevant items as follows:
METHOD OF DEDUCTION
The BIR has reiterated that the taxpayer choose one of two methods of deduction in the first quarter of the year and shall consistently use this method throughout the year:
1. itemized deduction
2. optional standard deduction (OSD) or the standard deduction of an amount not exceeding 40% of gross income for corporations and 40% of gross sales/receipts/revenues/fees for individuals.
In the event a taxpayer fails to avail of one of the two methods of deduction in their first quarter ITR or file the quarterly ITR for the first quarter, he or she shall be assigned with the itemized deduction method.
Moreover, the choice between OSD or itemized deduction is irrevocable for the taxable year and such irrevocability is not affected by any amendment by the taxpayer of his first quarter ITR.
Hence, for the filing to be made on or before April 15, the taxpayer shall have no choice but to consistently apply the choice made in the first quarter ITR. Thus, for final income tax return for 2013 that will be filed on 2014, it is important that at this early stage, one shall have decided between itemized deductions and OSD through careful analysis of forecasted cost and revenues and overall review of one’s projected business operations for 2013.
OVERPAYMENT
Generally, taxpayers opt to carry over the excess tax credits/payments in the quarters of the succeeding taxable years. Alternatively, the taxpayer may also opt for the excess be refunded or issued with the tax credit certificate (TCC).
Once the taxpayer signifies his intention to carry over and apply the excess income tax against income tax due for the succeeding taxable year, no application for cash refund or issuance of a TCC shall be allowed. In case the taxpayer fails to signify his/her choice, the excess payment shall be automatically carried over to the next taxable period.
In Court of Tax Appeals (CTA) Case No. 8083, the Court had the opportunity again to discuss the application of the irrevocability rule on the disposition of excess income taxes as cited in the ITR primer.
In the said case, petitioner ticked the box “to be issued a tax credit certificate” in its 2004 income tax return, which was filed on April 15, 2005. Subsequently, in 2007 it filed with the BIR a claim for issuance of TCC of excess creditable withholding tax for the year 2004. The Court, however, noted that the company carried over its excess credits in 2004 to the three quarters of 2005 as well as in the annual income tax return for the year, hence, the denial of the claim.
It is important that taxpayers decide on what to do with their excess income tax. In case he or she opts to be refunded or issued a tax credit certificate, he or she should also weigh the cost and benefit of applying the tax refund/credit certificate.
With the BIR further deferring to taxable year 2013 the requirement for individuals to disclose their other income in the enhanced BIR ITR (BIR Forms 1700 and 1701), individual taxpayers are advised to keep evidence or records of their tax-exempt income and income subject to final withholding tax such as interest income, fringe benefits, property acquired by gift or bequest, etc. in 2013 to ensure compliance with the disclosure requirements.
In addition to the guidelines in accomplishing the forms, the BIR has listed the necessary attachments:
1. statement of management’s responsibility (SMR) for annual income tax return;
2. regular allowable itemized deductions as mandatory attachment to BIR Form 1701/1702 (this may not be submitted if the taxpayer opted for OSD);
3. certificate of independent CPA and financial statements (FS)
4. schedules that must be part of the notes to the audited FS such as sales/receipts/fees, cost of sales/services, non-operating and other taxable income, etc.; and
5. proof of taxes withheld or tax credits such as Certificate of Income Tax Withheld on Compensation (BIR Form 2316) and Certificate of Creditable Tax Withheld at Source (BIR Form 2307).
Lastly, to encourage taxpayers to submit the required attachments, the BIR reiterated it will slap a fine of not more than P25,000 in a calendar year for non-submission or incomplete submission of the attachments.
Such meager fine must not be taken by taxpayers as reason to neglect the submission of required attachments because the information in attachments not submitted may be critical during BIR assessments.
With the issuance of the primer, the BIR has emphasized the importance of the information in the ITRs. Accordingly, taxpayers are expected to be proficient in the preparation of ITRs to minimize, if not avoid, tax penalties and future BIR assessments.
Ms. Fawagan is a tax senior with Punongbayan & Araullo’s (P&A) Tax Advisory and Compliance Division. P&A is a leading audit, tax and an advisory service firm and is the Philippine member of Grant Thornton International Ltd. For comments and inquiries please e-mail MarieFe.Fawagan@ph.gt.com or call 886-5511. - See more at: http://www.bworldonline.com/content.php?section=Economy&title=Income-tax-return-primers-released&id=67994#sthash.c6FY4KCp.dpuf
We recall
that in November 2011 the Bureau of Internal Revenue (BIR) mandated
taxpayers to use the enhanced annual income tax returns (ITR) for
individuals and estates and trusts (BIR Form 1701), and non-individual
tax payers (BIR Form 1702). Many taxpayers complained of difficulty in
filling out the forms.
After more than a year, the BIR issued a primer to serve as guide on how to properly accomplish BIR Forms 1701 and 1702.
The following are the general instructions:
1. All applicable spaces must be filled in.
2. All information required must be written in capitals.
3. Mark with “X” all applicable circles.
It is worth noting that the taxpayer may be held liable for erroneous or incorrect information and will be penalized with tax deficiency payment or penalty on future assessments or even denial of tax claims. Hence, it is also a good point the BIR did not only list the procedures in filling the forms, but also provided a line-by-line explanation of each item, supporting details and certain rules. Taxpayers should be mindful of certain relevant items as follows:
METHOD OF DEDUCTION
The BIR has reiterated that the taxpayer choose one of two methods of deduction in the first quarter of the year and shall consistently use this method throughout the year:
1. itemized deduction
2. optional standard deduction (OSD) or the standard deduction of an amount not exceeding 40% of gross income for corporations and 40% of gross sales/receipts/revenues/fees for individuals.
In the event a taxpayer fails to avail of one of the two methods of deduction in their first quarter ITR or file the quarterly ITR for the first quarter, he or she shall be assigned with the itemized deduction method.
Moreover, the choice between OSD or itemized deduction is irrevocable for the taxable year and such irrevocability is not affected by any amendment by the taxpayer of his first quarter ITR.
Hence, for the filing to be made on or before April 15, the taxpayer shall have no choice but to consistently apply the choice made in the first quarter ITR. Thus, for final income tax return for 2013 that will be filed on 2014, it is important that at this early stage, one shall have decided between itemized deductions and OSD through careful analysis of forecasted cost and revenues and overall review of one’s projected business operations for 2013.
OVERPAYMENT
Generally, taxpayers opt to carry over the excess tax credits/payments in the quarters of the succeeding taxable years. Alternatively, the taxpayer may also opt for the excess be refunded or issued with the tax credit certificate (TCC).
Once the taxpayer signifies his intention to carry over and apply the excess income tax against income tax due for the succeeding taxable year, no application for cash refund or issuance of a TCC shall be allowed. In case the taxpayer fails to signify his/her choice, the excess payment shall be automatically carried over to the next taxable period.
In Court of Tax Appeals (CTA) Case No. 8083, the Court had the opportunity again to discuss the application of the irrevocability rule on the disposition of excess income taxes as cited in the ITR primer.
In the said case, petitioner ticked the box “to be issued a tax credit certificate” in its 2004 income tax return, which was filed on April 15, 2005. Subsequently, in 2007 it filed with the BIR a claim for issuance of TCC of excess creditable withholding tax for the year 2004. The Court, however, noted that the company carried over its excess credits in 2004 to the three quarters of 2005 as well as in the annual income tax return for the year, hence, the denial of the claim.
It is important that taxpayers decide on what to do with their excess income tax. In case he or she opts to be refunded or issued a tax credit certificate, he or she should also weigh the cost and benefit of applying the tax refund/credit certificate.
With the BIR further deferring to taxable year 2013 the requirement for individuals to disclose their other income in the enhanced BIR ITR (BIR Forms 1700 and 1701), individual taxpayers are advised to keep evidence or records of their tax-exempt income and income subject to final withholding tax such as interest income, fringe benefits, property acquired by gift or bequest, etc. in 2013 to ensure compliance with the disclosure requirements.
In addition to the guidelines in accomplishing the forms, the BIR has listed the necessary attachments:
1. statement of management’s responsibility (SMR) for annual income tax return;
2. regular allowable itemized deductions as mandatory attachment to BIR Form 1701/1702 (this may not be submitted if the taxpayer opted for OSD);
3. certificate of independent CPA and financial statements (FS)
4. schedules that must be part of the notes to the audited FS such as sales/receipts/fees, cost of sales/services, non-operating and other taxable income, etc.; and
5. proof of taxes withheld or tax credits such as Certificate of Income Tax Withheld on Compensation (BIR Form 2316) and Certificate of Creditable Tax Withheld at Source (BIR Form 2307).
Lastly, to encourage taxpayers to submit the required attachments, the BIR reiterated it will slap a fine of not more than P25,000 in a calendar year for non-submission or incomplete submission of the attachments.
Such meager fine must not be taken by taxpayers as reason to neglect the submission of required attachments because the information in attachments not submitted may be critical during BIR assessments.
With the issuance of the primer, the BIR has emphasized the importance of the information in the ITRs. Accordingly, taxpayers are expected to be proficient in the preparation of ITRs to minimize, if not avoid, tax penalties and future BIR assessments.
Ms. Fawagan is a tax senior with Punongbayan & Araullo’s (P&A) Tax Advisory and Compliance Division. P&A is a leading audit, tax and an advisory service firm and is the Philippine member of Grant Thornton International Ltd. For comments and inquiries please e-mail MarieFe.Fawagan@ph.gt.com or call 886-5511. - See more at: http://www.bworldonline.com/content.php?section=Economy&title=Income-tax-return-primers-released&id=67994#sthash.c6FY4KCp.dpuf
After more than a year, the BIR issued a primer to serve as guide on how to properly accomplish BIR Forms 1701 and 1702.
The following are the general instructions:
1. All applicable spaces must be filled in.
2. All information required must be written in capitals.
3. Mark with “X” all applicable circles.
It is worth noting that the taxpayer may be held liable for erroneous or incorrect information and will be penalized with tax deficiency payment or penalty on future assessments or even denial of tax claims. Hence, it is also a good point the BIR did not only list the procedures in filling the forms, but also provided a line-by-line explanation of each item, supporting details and certain rules. Taxpayers should be mindful of certain relevant items as follows:
METHOD OF DEDUCTION
The BIR has reiterated that the taxpayer choose one of two methods of deduction in the first quarter of the year and shall consistently use this method throughout the year:
1. itemized deduction
2. optional standard deduction (OSD) or the standard deduction of an amount not exceeding 40% of gross income for corporations and 40% of gross sales/receipts/revenues/fees for individuals.
In the event a taxpayer fails to avail of one of the two methods of deduction in their first quarter ITR or file the quarterly ITR for the first quarter, he or she shall be assigned with the itemized deduction method.
Moreover, the choice between OSD or itemized deduction is irrevocable for the taxable year and such irrevocability is not affected by any amendment by the taxpayer of his first quarter ITR.
Hence, for the filing to be made on or before April 15, the taxpayer shall have no choice but to consistently apply the choice made in the first quarter ITR. Thus, for final income tax return for 2013 that will be filed on 2014, it is important that at this early stage, one shall have decided between itemized deductions and OSD through careful analysis of forecasted cost and revenues and overall review of one’s projected business operations for 2013.
OVERPAYMENT
Generally, taxpayers opt to carry over the excess tax credits/payments in the quarters of the succeeding taxable years. Alternatively, the taxpayer may also opt for the excess be refunded or issued with the tax credit certificate (TCC).
Once the taxpayer signifies his intention to carry over and apply the excess income tax against income tax due for the succeeding taxable year, no application for cash refund or issuance of a TCC shall be allowed. In case the taxpayer fails to signify his/her choice, the excess payment shall be automatically carried over to the next taxable period.
In Court of Tax Appeals (CTA) Case No. 8083, the Court had the opportunity again to discuss the application of the irrevocability rule on the disposition of excess income taxes as cited in the ITR primer.
In the said case, petitioner ticked the box “to be issued a tax credit certificate” in its 2004 income tax return, which was filed on April 15, 2005. Subsequently, in 2007 it filed with the BIR a claim for issuance of TCC of excess creditable withholding tax for the year 2004. The Court, however, noted that the company carried over its excess credits in 2004 to the three quarters of 2005 as well as in the annual income tax return for the year, hence, the denial of the claim.
It is important that taxpayers decide on what to do with their excess income tax. In case he or she opts to be refunded or issued a tax credit certificate, he or she should also weigh the cost and benefit of applying the tax refund/credit certificate.
With the BIR further deferring to taxable year 2013 the requirement for individuals to disclose their other income in the enhanced BIR ITR (BIR Forms 1700 and 1701), individual taxpayers are advised to keep evidence or records of their tax-exempt income and income subject to final withholding tax such as interest income, fringe benefits, property acquired by gift or bequest, etc. in 2013 to ensure compliance with the disclosure requirements.
In addition to the guidelines in accomplishing the forms, the BIR has listed the necessary attachments:
1. statement of management’s responsibility (SMR) for annual income tax return;
2. regular allowable itemized deductions as mandatory attachment to BIR Form 1701/1702 (this may not be submitted if the taxpayer opted for OSD);
3. certificate of independent CPA and financial statements (FS)
4. schedules that must be part of the notes to the audited FS such as sales/receipts/fees, cost of sales/services, non-operating and other taxable income, etc.; and
5. proof of taxes withheld or tax credits such as Certificate of Income Tax Withheld on Compensation (BIR Form 2316) and Certificate of Creditable Tax Withheld at Source (BIR Form 2307).
Lastly, to encourage taxpayers to submit the required attachments, the BIR reiterated it will slap a fine of not more than P25,000 in a calendar year for non-submission or incomplete submission of the attachments.
Such meager fine must not be taken by taxpayers as reason to neglect the submission of required attachments because the information in attachments not submitted may be critical during BIR assessments.
With the issuance of the primer, the BIR has emphasized the importance of the information in the ITRs. Accordingly, taxpayers are expected to be proficient in the preparation of ITRs to minimize, if not avoid, tax penalties and future BIR assessments.
Ms. Fawagan is a tax senior with Punongbayan & Araullo’s (P&A) Tax Advisory and Compliance Division. P&A is a leading audit, tax and an advisory service firm and is the Philippine member of Grant Thornton International Ltd. For comments and inquiries please e-mail MarieFe.Fawagan@ph.gt.com or call 886-5511. - See more at: http://www.bworldonline.com/content.php?section=Economy&title=Income-tax-return-primers-released&id=67994#sthash.c6FY4KCp.dpuf
We recall
that in November 2011 the Bureau of Internal Revenue (BIR) mandated
taxpayers to use the enhanced annual income tax returns (ITR) for
individuals and estates and trusts (BIR Form 1701), and non-individual
tax payers (BIR Form 1702). Many taxpayers complained of difficulty in
filling out the forms.
After more than a year, the BIR issued a primer to serve as guide on how to properly accomplish BIR Forms 1701 and 1702.
The following are the general instructions:
1. All applicable spaces must be filled in.
2. All information required must be written in capitals.
3. Mark with “X” all applicable circles.
It is worth noting that the taxpayer may be held liable for erroneous or incorrect information and will be penalized with tax deficiency payment or penalty on future assessments or even denial of tax claims. Hence, it is also a good point the BIR did not only list the procedures in filling the forms, but also provided a line-by-line explanation of each item, supporting details and certain rules. Taxpayers should be mindful of certain relevant items as follows:
METHOD OF DEDUCTION
The BIR has reiterated that the taxpayer choose one of two methods of deduction in the first quarter of the year and shall consistently use this method throughout the year:
1. itemized deduction
2. optional standard deduction (OSD) or the standard deduction of an amount not exceeding 40% of gross income for corporations and 40% of gross sales/receipts/revenues/fees for individuals.
In the event a taxpayer fails to avail of one of the two methods of deduction in their first quarter ITR or file the quarterly ITR for the first quarter, he or she shall be assigned with the itemized deduction method.
Moreover, the choice between OSD or itemized deduction is irrevocable for the taxable year and such irrevocability is not affected by any amendment by the taxpayer of his first quarter ITR.
Hence, for the filing to be made on or before April 15, the taxpayer shall have no choice but to consistently apply the choice made in the first quarter ITR. Thus, for final income tax return for 2013 that will be filed on 2014, it is important that at this early stage, one shall have decided between itemized deductions and OSD through careful analysis of forecasted cost and revenues and overall review of one’s projected business operations for 2013.
OVERPAYMENT
Generally, taxpayers opt to carry over the excess tax credits/payments in the quarters of the succeeding taxable years. Alternatively, the taxpayer may also opt for the excess be refunded or issued with the tax credit certificate (TCC).
Once the taxpayer signifies his intention to carry over and apply the excess income tax against income tax due for the succeeding taxable year, no application for cash refund or issuance of a TCC shall be allowed. In case the taxpayer fails to signify his/her choice, the excess payment shall be automatically carried over to the next taxable period.
In Court of Tax Appeals (CTA) Case No. 8083, the Court had the opportunity again to discuss the application of the irrevocability rule on the disposition of excess income taxes as cited in the ITR primer.
In the said case, petitioner ticked the box “to be issued a tax credit certificate” in its 2004 income tax return, which was filed on April 15, 2005. Subsequently, in 2007 it filed with the BIR a claim for issuance of TCC of excess creditable withholding tax for the year 2004. The Court, however, noted that the company carried over its excess credits in 2004 to the three quarters of 2005 as well as in the annual income tax return for the year, hence, the denial of the claim.
It is important that taxpayers decide on what to do with their excess income tax. In case he or she opts to be refunded or issued a tax credit certificate, he or she should also weigh the cost and benefit of applying the tax refund/credit certificate.
With the BIR further deferring to taxable year 2013 the requirement for individuals to disclose their other income in the enhanced BIR ITR (BIR Forms 1700 and 1701), individual taxpayers are advised to keep evidence or records of their tax-exempt income and income subject to final withholding tax such as interest income, fringe benefits, property acquired by gift or bequest, etc. in 2013 to ensure compliance with the disclosure requirements.
In addition to the guidelines in accomplishing the forms, the BIR has listed the necessary attachments:
1. statement of management’s responsibility (SMR) for annual income tax return;
2. regular allowable itemized deductions as mandatory attachment to BIR Form 1701/1702 (this may not be submitted if the taxpayer opted for OSD);
3. certificate of independent CPA and financial statements (FS)
4. schedules that must be part of the notes to the audited FS such as sales/receipts/fees, cost of sales/services, non-operating and other taxable income, etc.; and
5. proof of taxes withheld or tax credits such as Certificate of Income Tax Withheld on Compensation (BIR Form 2316) and Certificate of Creditable Tax Withheld at Source (BIR Form 2307).
Lastly, to encourage taxpayers to submit the required attachments, the BIR reiterated it will slap a fine of not more than P25,000 in a calendar year for non-submission or incomplete submission of the attachments.
Such meager fine must not be taken by taxpayers as reason to neglect the submission of required attachments because the information in attachments not submitted may be critical during BIR assessments.
With the issuance of the primer, the BIR has emphasized the importance of the information in the ITRs. Accordingly, taxpayers are expected to be proficient in the preparation of ITRs to minimize, if not avoid, tax penalties and future BIR assessments.
Ms. Fawagan is a tax senior with Punongbayan & Araullo’s (P&A) Tax Advisory and Compliance Division. P&A is a leading audit, tax and an advisory service firm and is the Philippine member of Grant Thornton International Ltd. For comments and inquiries please e-mail MarieFe.Fawagan@ph.gt.com or call 886-5511. - See more at: http://www.bworldonline.com/content.php?section=Economy&title=Income-tax-return-primers-released&id=67994#sthash.c6FY4KCp.dpuf
After more than a year, the BIR issued a primer to serve as guide on how to properly accomplish BIR Forms 1701 and 1702.
The following are the general instructions:
1. All applicable spaces must be filled in.
2. All information required must be written in capitals.
3. Mark with “X” all applicable circles.
It is worth noting that the taxpayer may be held liable for erroneous or incorrect information and will be penalized with tax deficiency payment or penalty on future assessments or even denial of tax claims. Hence, it is also a good point the BIR did not only list the procedures in filling the forms, but also provided a line-by-line explanation of each item, supporting details and certain rules. Taxpayers should be mindful of certain relevant items as follows:
METHOD OF DEDUCTION
The BIR has reiterated that the taxpayer choose one of two methods of deduction in the first quarter of the year and shall consistently use this method throughout the year:
1. itemized deduction
2. optional standard deduction (OSD) or the standard deduction of an amount not exceeding 40% of gross income for corporations and 40% of gross sales/receipts/revenues/fees for individuals.
In the event a taxpayer fails to avail of one of the two methods of deduction in their first quarter ITR or file the quarterly ITR for the first quarter, he or she shall be assigned with the itemized deduction method.
Moreover, the choice between OSD or itemized deduction is irrevocable for the taxable year and such irrevocability is not affected by any amendment by the taxpayer of his first quarter ITR.
Hence, for the filing to be made on or before April 15, the taxpayer shall have no choice but to consistently apply the choice made in the first quarter ITR. Thus, for final income tax return for 2013 that will be filed on 2014, it is important that at this early stage, one shall have decided between itemized deductions and OSD through careful analysis of forecasted cost and revenues and overall review of one’s projected business operations for 2013.
OVERPAYMENT
Generally, taxpayers opt to carry over the excess tax credits/payments in the quarters of the succeeding taxable years. Alternatively, the taxpayer may also opt for the excess be refunded or issued with the tax credit certificate (TCC).
Once the taxpayer signifies his intention to carry over and apply the excess income tax against income tax due for the succeeding taxable year, no application for cash refund or issuance of a TCC shall be allowed. In case the taxpayer fails to signify his/her choice, the excess payment shall be automatically carried over to the next taxable period.
In Court of Tax Appeals (CTA) Case No. 8083, the Court had the opportunity again to discuss the application of the irrevocability rule on the disposition of excess income taxes as cited in the ITR primer.
In the said case, petitioner ticked the box “to be issued a tax credit certificate” in its 2004 income tax return, which was filed on April 15, 2005. Subsequently, in 2007 it filed with the BIR a claim for issuance of TCC of excess creditable withholding tax for the year 2004. The Court, however, noted that the company carried over its excess credits in 2004 to the three quarters of 2005 as well as in the annual income tax return for the year, hence, the denial of the claim.
It is important that taxpayers decide on what to do with their excess income tax. In case he or she opts to be refunded or issued a tax credit certificate, he or she should also weigh the cost and benefit of applying the tax refund/credit certificate.
With the BIR further deferring to taxable year 2013 the requirement for individuals to disclose their other income in the enhanced BIR ITR (BIR Forms 1700 and 1701), individual taxpayers are advised to keep evidence or records of their tax-exempt income and income subject to final withholding tax such as interest income, fringe benefits, property acquired by gift or bequest, etc. in 2013 to ensure compliance with the disclosure requirements.
In addition to the guidelines in accomplishing the forms, the BIR has listed the necessary attachments:
1. statement of management’s responsibility (SMR) for annual income tax return;
2. regular allowable itemized deductions as mandatory attachment to BIR Form 1701/1702 (this may not be submitted if the taxpayer opted for OSD);
3. certificate of independent CPA and financial statements (FS)
4. schedules that must be part of the notes to the audited FS such as sales/receipts/fees, cost of sales/services, non-operating and other taxable income, etc.; and
5. proof of taxes withheld or tax credits such as Certificate of Income Tax Withheld on Compensation (BIR Form 2316) and Certificate of Creditable Tax Withheld at Source (BIR Form 2307).
Lastly, to encourage taxpayers to submit the required attachments, the BIR reiterated it will slap a fine of not more than P25,000 in a calendar year for non-submission or incomplete submission of the attachments.
Such meager fine must not be taken by taxpayers as reason to neglect the submission of required attachments because the information in attachments not submitted may be critical during BIR assessments.
With the issuance of the primer, the BIR has emphasized the importance of the information in the ITRs. Accordingly, taxpayers are expected to be proficient in the preparation of ITRs to minimize, if not avoid, tax penalties and future BIR assessments.
Ms. Fawagan is a tax senior with Punongbayan & Araullo’s (P&A) Tax Advisory and Compliance Division. P&A is a leading audit, tax and an advisory service firm and is the Philippine member of Grant Thornton International Ltd. For comments and inquiries please e-mail MarieFe.Fawagan@ph.gt.com or call 886-5511. - See more at: http://www.bworldonline.com/content.php?section=Economy&title=Income-tax-return-primers-released&id=67994#sthash.c6FY4KCp.dpuf
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