How to avoid costly tax mistakes

by Jon Carlos Rodriguez,

Posted at Apr 08 2014 12:06 PM | Updated as of Apr 08 2014 08:06 PM

MANILA, Philippines – As the deadline for filing income tax returns draws near, taxpayers are reminded to avoid costly mistakes in filing taxes.

Tax lawyer Atty. Mark Joven said one of the common mistakes of taxpayers is ignoring notices sent by the Bureau of Internal Revenue (BIR) months before the deadline.

“You must read the notice, see what they’re trying to say to you and act accordingly,” Joven said on ANC’s “On The Money,” adding that seeking professional advice will be helpful in addressing the tax issues.

He said failure to address the issues may lead to being in default.

Joven also said Filipino taxpayers, particularly entrepreneurs, should learn to move on from the notion of “less reporting is better.”

He said some taxpayers are not being realistic in reporting their income, which raises a red flag for tax agents.

“Most people try to report as little income as they can, that’s risky,” he said.

Joven reminded taxpayers that all income is supposed to be included in the income tax return, noting that there are some exemptions.

Taxpayers are exempted from filing if they are earning passive income from interest on bank deposits, dividends, and stock market trading gains.

Exemptions also include those buying and selling real property not in the course of business, as well as those buying and selling shares not listed in the Philippine Stock Exchange.

Taxpayers with only one employer and is paid purely on compensation income will also not be required to file taxes as they fall under the substituted filing system.

“It’s called substituted because the employer does the filing for you,” said Joven.

Those with other income or with multiple employees, however, have to file income tax returns to declare all sources of income.

Joven also urged taxpayers to review the new BIR form that has amended sections.

These new forms require taxpayers to disclose certain income which are already subjected to final tax such as interest, dividends, gain on sale of shares whether listed or unlisted with the stock exchange.

“For your everyday Joe, that’s not really a problem. For taipans, and relatively wealthy people, it may pose as a problem because you need to disclose all interest income on all bank deposits,” said Joven.

Joven said that due to opposition from lawmakers, disclosure on passive income is not mandatory for taxable year 2013.

The BIR has also mandated that all professional fees on inpatients are to be paid to the hospital, not the doctor. The hospital will then withhold taxes on these fee payments.

“The BIR noticed that a lot of medical practitioners sometimes fail to report the proper income, especially on procedure related fees,” he said.