Many good things come with being a freelancer – you manage your own time, you have more flexibility in choosing clients, you don’t have to sit through excruciating traffic, etc. There are some downsides to this, too, including the possibility of not having a stable income, easily being ghosted by clients, getting paid less than your worth, and not being able to enjoy normal benefits.
Tax Calculator
The biggest one – and we think freelancers out there will agree with us here – is that you have to file your own taxes. Despite the number of online tax calculator in the Philippines, those who make the transition from being company employees to freelancers find that this is the hardest thing to do. Being in charge of your own taxes is hard and it’s really not something that was taught to us at school, so most of us have little to no knowledge about the process.
While some freelancers invest in having an accountant to manage all tax-related concerns for them, it is still essential that you know the basics of tax.
If you’re a freelancer or just someone who wants to know about taxes, then we’re glad to have you as our audience. In this article, we’ll be listing some important information about taxes that freelancers should know about. You can also check here for tax planning and preparation tips.
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Taxes are Required
Freelancers often think that they can get away with not paying their taxes since the government doesn’t keep an eye on them. While there is a grain of truth behind the fact that they aren’t as strictly monitored as employees under big companies, it is still a criminal act to evade taxes.
Everyone – except for a few who we’ll mention later – is required to file their taxes. Regular employees and freelancers alike have to properly file and pay their taxes according to the law. Heavy punishments, which may include large fine or imprisonment, are waiting for those who fail to do so.
Tax Filings have Deadlines
Another thing not many freelancers may be aware of at first is that there are deadlines for these tax filings. Previously, annual tax declarations had to be done on or before the 15th of April of every year. Recently, however, there have been changes in the law and the deadline has been moved to the 15th of May. As for payment, the first installment shall be given on or before May 15th, while the second one must not exceed October 15th of the same year.
There are other rules in regards to tax filings and declarations and it is important to be aware of each one. This will prevent you from missing deadlines which can lead to sanctions the more days you are late when filing your tax.
Tax Rates Differ According to Income
Freelancers out there should know that you are not required to pay the same amount of tax as your colleagues unless you earn roughly the same amount of money. Your tax rates depend solely on your income – those who have an annual income of P300,000 pay much less than those who earn half a million or more.
It is important to know these brackets to ensure that you are paying the appropriate amount and nothing more. Moreover, for freelancers, income may vary yearly or even quarterly, and these changes are going to affect your tax rates.
Tax Exemptions and Deductibles Exist
As mentioned earlier, there are people that are exempted from paying their taxes. Under these exemptions are self-employed individuals whose gross income per year falls on or below P250,000. Regular employees are also exempted from this given that their employers are properly withholding their income taxes.
Aside from exemptions, there are also deductibles that you can, well, deduct to your gross income ultimately lowering your tax rate. Some go for the optional standard deduction (OSD) which makes 60% of their total income their taxable income. Others opt for the itemized deduction where they sum up all their business-related expenses and subtract that from their total taxable income.
These two things are important as they help balance the tax rates of freelancers who don’t always have the same amount of income and stability as regular employees.
Key Takeaway
Managing your own taxes is indeed hard work even if you use a tax calculator in the Philippines. However, it should only take a matter of time and be getting used to before you find it easy and normal. You just have to get over the beginner’s slump before you can be comfortable and confident in filing and paying your own taxes.
Now that you know these tips mentioned, you can now plan in advance and file your taxes early to avoid troublesome situations. Hopefully, the things listed here could help make the process a little bit easier. You can use them as a reminder as you become a responsible, tax-paying citizen of the Philippines.