6 Small Business Tips for a Stress-Free Tax Season in 2024

6 Small Business Tips for a Stress-Free Tax Season in 2024

March 21, 2023 | 4:26 pm

Small business owners find tax season particularly stressful due to constantly changing regulations, the pressure to meet deadlines, and the fear of making costly errors.  But what if you could make tax season stress-free with practical tips?

Preparing taxes well before the April 15th deadline minimizes stress, allows for more accurate filing, and could uncover opportunities for tax savings.

Furthermore, the Ease of Paying Taxes (EOPT) Act was recently signed into law. This act aims for more relaxed tax regulations, such as lower fees, simplified requirements, and a hassle-free tax filing process.

Crush the tax season stress! This blog is packed with simple-to-follow tips for small businesses like yours. We’ll show you how to navigate the tax season and transform a potential headache into a smooth, stress-free experience.

What are stress-free tax tips for small businesses?

Navigating tax season can be challenging, even for seasoned taxpayers. With the filing of the annual income tax return (ITR) set for April 15, here are practical tips for a stress-free tax season.

Tax tips for small businesses for a stress-free tax season

Stay on top of tax changes

Running a business is no small feat; keeping up with the ever-changing tax regulations can feel like another huddle. But staying informed can keep you stress-free this tax season.

Knowing the latest rules lets you know how much tax you owe, deductions you can claim, and even the filing procedures. Furthermore, understanding the tax rules that apply to your business means you stay compliant and avoid costly penalties.

What is the Ease of Paying Taxes Act?

A significant change recently implemented was the signing of the Ease of Paying Taxes (EOPT) Act on January 5, 2024. This law contains significant amendments to make the tax system more taxpayer-friendly and efficient.

A critical aspect of the EOPT Act is that taxpayers are now classified into new categories based on their annual gross sales, making tax administration more responsive and tailored to each taxpayer’s needs.

The EOPT Act defines taxpayers as four categories based on gross sales: micro, small, medium, and large corporations.

Knowing which classification your business falls into also clarifies the benefits you can enjoy from being a taxpayer.

For example, the EOPT Act provides a provision exempting micro taxpayers from paying withholding tax thereby saving them from additional expense.

Micro and small taxpayers also can expect significant relief. The surcharge for failure to file a tax return or filing an incorrect return drops from 25% to 10%.

Furthermore, the interest penalty is halved, and the compromise penalty for invoicing issues is reduced by 50%.

What is the simplified rule on Value-added Tax?

For business owners who need to pay value-added tax (VAT), familiarizing yourself with the new VAT rules will inform you of your requirements for VAT and income tax filing.

For one, businesses should now use gross sales as the basis for VAT for both sales of goods and services. Previously, taxpayers had to use different documents as their VAT basis - gross sales for sales of goods and gross receipts for services sales.

By making the basis uniform for all sales transactions, businesses will find it easier to track documentation, especially since they will only need to refer to their invoices from now on.

Know your tax obligations

Aside from familiarizing yourself with tax regulations, you should also know the taxes that apply to your business, which generally depend on your business's legal structure.

Understanding business-specific tax obligations is key to a smooth and stress-free tax season. Here’s why:

  • Knowing exactly which taxes you owe allows for proactive financial planning. You can set aside necessary funds to avoid cash flow issues during tax season.
  • Staying informed prevents unexpected or last-minute issues. There is no more scrambling to meet deadlines or facing penalties for late filing or missed payments.
  • When you are clear about the applicable taxes for your business, you can prepare the required documents efficiently.

What are the applicable tax rates for SMEs?

For those in sole proprietorships or partnerships, business owners would need to pay personal income tax quarterly, at a graduated rate of up to 35% or at a fixed rate of 8%.

However, note that the 8% rate is only available to businesses whose sales don't exceed the current VAT threshold of ₱3M.

If you opt for the graduated tax rates, your business will also be subject to a 12% VAT or monthly percentage tax, also called sales tax or business tax, equal to 3% of your gross sales, as applicable.

Corporations, on the other hand, are subject to corporate income tax of up to 25%. Like the other legal structures, corporations also have a VAT threshold of ₱3M, and exceeding this would result in an additional 12% tax.

Businesses with salaried employees must also remit taxes they withheld from their employees' income to the BIR.

Take advantage of tax deductions

While all businesses have a responsibility to pay taxes, there are smart strategies to minimize your tax burden legally. This is where tax deductions come in: they allow you to subtract specific expenses from your taxable income, ultimately reducing the taxes your business owes.

Furthermore, the recent changes to tax regulations have simplified the process of claiming allowable deductions.

The EOPT Act has removed the requirement to pay withholding tax before claiming a tax deduction on certain payments and expenses. Previously, businesses must prove that they paid withholding taxes to the BIR before claiming deductions.

With the tax rules being eased, claiming allowable tax deductions is easier. This translates to a reduced tax burden and increased cash flow for reinvestment in operations, growth initiatives, or other strategic priorities.

Some of the most common tax deductions are:

Common Tax Deductions for SMEs
  • Utility expenses: Business owners can use electricity, water, internet, and rent expenses as tax deductions as long as they have proper documentation, like receipts, and the expenses are purely for business purposes.
  • Representation and entertainment expenses: Costs related to attending events to represent your company, as well as entertainment expenses, like company parties, are valid tax deductions to lower income tax.
  • Employee income: Your employee’s salaries are part of the business’s operating costs and are expenses you can deduct from your taxable income.
  • Employee benefits: Like income tax, businesses can use mandatory employee benefits such as SSS, Pag-IBIG, and PhilHealth as tax deductions. Fringe benefits like holiday bonuses, educational allowance, and club memberships can reduce your business’s taxable income.

Watch this video to learn the secrets to maximizing tax deductions:

Organize your documents

Meticulous record-keeping might seem like a chore, but it's one of the secret weapons to a stress-free tax season.

Proper bookkeeping involves organizing financial documents during tax season and at all times. These documents may include sales invoices, official receipts, checks, utility bills, etc.

Your financial documents will serve as your reference when calculating how much taxes to pay. At the same time, BIR may request a copy of these documents, especially if the business is audited or when declaring tax deductions.

Moreover, the EOPT Act requires taxpayers to preserve their books of accounts and accounting records for five years after the date or deadline for filing the returns.

To safeguard your documents better, it’s also best to upload backups of your files to accounting software.

Avoid costly mistakes and ensure your data are accurate with these proven bookkeeping tips:

File and pay your taxes anywhere

The EOPT Act includes the ‘File and pay anywhere’ process, providing more convenience to taxpayers in settling their tax payments.

Previously, taxpayers could only file and pay their taxes within the jurisdiction of where their business was registered. If they filed in the wrong venue, the business had to pay the 25% surcharge on the tax due.

But with ‘File and pay anywhere,’ taxpayers like SME owners can now file anywhere without any surcharge. This option gives taxpayers more flexibility in filing their tax returns.

In addition, payments are allowed electronically or manually through payment channels such as authorized agent banks, RDOs, and authorized tax software.

How do you manage tax deadlines?

There are many ways business owners can manage tax deadlines and avoid late filing of taxes.

One is setting up calendar reminders, whether on your phone or digital business accounts, for easier tracking. This way, you can proactively track when your deadlines will be and ensure you’re prepared.

You can also set these tax reminders on your accounting software like Xero. Using accounting software gives entrepreneurs more flexibility in handling finances, and they can even set up other automated reminders for payroll, invoice payments, and such.

Consult a tax professional

Business owners should engage the help of a tax professional to ensure a stress-free tax season.

Consulting a tax professional is beneficial to SMEs for the following reasons:

  • Getting quick access to accurate tax advice prevents mishaps if entrepreneurs decide to do their tax organization and filings.
  • They keep business owners informed about the latest tax changes, such as the EOPT Act since it’s the tax pro’s job to keep track of these updates.
  • Outsourcing is especially important if SMEs need more targeted assistance handling tax and finances but lack a full-time employee budget.
  • The ability to develop the best strategies for lowering tax obligations through deductions or credits.

Enlisting the expertise of tax professionals offers businesses, regardless of size and stage, comprehensive support they could use to make tax season less complex and stressful.

Are small businesses required to register with BIR?

The short answer is yes if you’re still unregistered and wondering if you should register your business with the BIR. Registering with the BIR ensures your business complies with the government.

Running a business is already challenging enough without the looming possibility of penalties and fines if you’re found unregistered.

According to the Tax Code, failure to register your business can result in a fine of ₱5,000 to ₱20,000 and imprisonment of six months to two years.

Moreover, being a registered business gives you access to more financial services. Opening a business bank account or acquiring loans may require a tax identification number (TIN), which you can only obtain from the BIR.

Customers are also more likely to transact with registered businesses, especially if they require official receipts (OR) for every transaction. ORs are especially important for B2B companies or those who serve other businesses since customers need receipts to document their business spending.

How much is the BIR registration fee in 2024?

Previously, businesses needed to pay an annual fee of ₱500 every January to renew their BIR business registration. Fortunately, starting this year, the EOPT Act has eliminated the annual registration fee (ARF) payment.

While BIR stops the collection of ARF payments, the business’s current Certificate of Registration (COR) remains valid, ensuring uninterrupted operations for companies.

Business owners, however, may still choose to update their COR at their convenience. To do so, they should visit their registered Revenue District Office (RDO) until the end of the year and surrender their old COR.

Avoid the stress this tax season

By staying informed about tax regulations and obligations, keeping meticulous records, and taking advantage of the EOPT Act’s simplified processes, you can transform tax season from a stressful ordeal into a manageable task.

To make things even better, seek professional guidance from OneCFO, experts in tax. Keep peace of mind knowing that your business is shielded from potential errors and missed tax deadlines.

As your all-in-one partner for growth, OneCFO can help your business navigate the complex world of tax and ensure you’re maximizing your resources and getting the best advice.

Visit us at onecfoph.co or at [email protected] to learn how to approach tax season with a sense of control and stress-free!

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