Bookkeeping and Tax Requirement for Freelancer/Self-Employed/Home-based Businesses

(Original posting: February 2014. Updated: March 2024)

In the past decade since I wrote the original article in 2014, we have witness that more individuals are now choosing to be self-employed by either selling service as freelancer or selling products from home via online platforms.

Freelancers and self-employed individuals generate income on their own rather than being employed.

Although you may heard a lot of success stories of freelancers or self-employed online sellers but there may be untold stories of the struggles encountered due to inability to properly manage their accounting records.

Additionally, if a freelancer or self-employed online seller fails to do proper tax compliance, they end up paying large amount of tax and penalties to the Bureau of Internal Revenue (BIR) when discovered. Not also forgetting the amount of stress and lack of peace of mind that comes with it.

It is my hope that with this article, I can guide you on the basic registration, bookkeeping and tax requirements that freelancer, self-employed, or sole-proprietor must monitor and comply with to avoid future problems with the BIR.

Register your online, home-based or freelance business

If you want to be taken seriously as freelancer or online home-based business, the first thing you need to do is to get registered basically to the following government agencies:

(Original posting: February 2014. Updated: March 2024)

For online home-based business selling products:

• Department of Trade Industry (DTI). To secure a trade name or business name.
• Local Government Units (LGUs), such as Barangay and Mayor’s Office.
• Bureau of Internal Revenue (BIR). To secure a new Tax Identification Number (TIN) or update your registration.

For freelancer, self-employed or professional selling services:

• Bureau of Internal Revenue (BIR). To secure a new Tax Identification Number (TIN) or update your registration.

For more details on registration, please see our article How to Register a Sole Proprietor Business in the Philippines?

Maintain accounting books

(Original posting: February 2014. Updated: March 2024)

After you register, the next step is to keep an accounting record. These are the typical accounting books applicable to freelancers, online sellers and self-employed professionals:

• General Journal
• General Ledger
• Cash Receipt Journal
• Cash Disbursement Journal
• Sales Journal, if with receivable.
• Purchase Journal, if with payable.

Important Note: Make sure that your accounting books are registered with the BIR.

To save time in learning how to write your books of accounts, you may use MPM Accounting Software for automated journals and ledgers which you can either:

• • Copy handwritten in your manual books
  • Print and book-bind loose-leaf books
  • Maintain as computerized books of accounts

Issue BIR Registered Invoices and/or Receipts

Next, register your invoices and receipts with the BIR.

• For manual invoices and/or receipts
  • Look for an accredited printer who will do the printing of your invoices and/or receipts.
• For looseleaf invoices and/or receipts
  • Apply for Permit to Use (PTU) looseleaf in your BIR RDO.
• For computerized invoices and/or receipts, Point-of-Sale (POS), Cash Register Machine (CRM), etc
  • Apply for Permit to Use (PTU) POS or CRM in your BIR RDO.

Alternatively, you may also use Computerized Accounting Software (CAS) for electronic Invoice and Receipt such as if you register as CAS in BIR using MPM Accounting Software.

It is important to take note that you must issue invoice and/or receipt for every sale or payment you receive from your customer. And record such in your accounting books.

Failure to issue invoice and declare it as sales in your tax filing may result to penalties and criminal case filed against you.

Keep the receipts of your expenses

It’s typical for business, even freelancers or online sellers, to incur expenses in order to operate. Expense is deducted from gross sales in order to come up with the net income. As such, ensure that you keep your expense receipts so you can determine the true financial performance (or profit).

It is important to take note that you must separate personal expenses from business expenses. Only business expenses must be recorded and reported in your tax filing. Failure to do so can result again to possible penalties and criminal case filed against you.

To have a real time report on your sales and expenses and to know if you are profiting or incurring losses, use MPM Accounting Software for automated record keeping. Subscribe here: www.mpm.ph/tax

File and/or pay the  tax returns on time

Once you’re registered with the BIR, keep in mind that you are required to pay or file monthly and quarterly tax returns, as follow:

(Original posting: February 2014. Updated: March 2024)

Monthly

• BIR Form 1601E 0619E (starting January 1, 2018) – this form is the Monthly Remittance Form for Expanded Withholding Tax. This applies to you if you are renting, paying professionals or commissions. This is due for filing and payment on or before 10th of the following month.
• BIR Form 1601C – this form is the Montly Remittance Form for Compensation Withholding Tax.  This applies to you if you have employees regardless if minimum wage earner or not. This is due for filing and payment on or before 10th of the following month.
• BIR Form 2551M – For Non-VAT individual.  It is the computed sales tax equivalent to 3% of monthly gross sales. This is due for payment or filing on or before 20th of the preceding month. Starting January 1, 2018, under TRAIN Law and RMC 26-2018, this form is no longer required to be filed monthly. It will now be filed quarterly using BIR Form 2551Q.

• BIR Form 2550M – For VAT individual. It is computed sales tax equivalent to 12% of monthly vatable sales less 12% of vatable purchases/expenses. This is due for payment or filing on or before 20th of the preceding month. Starting January 1, 2023, under TRAIN Law and RMC 5-2023, this form is no longer required to be filed monthly. The requirement will now only be every quarter using BIR Form 2550Q.

Quarterly

• BIR Form 2551Q – this form is for NonVAT registered. It is the Quarterly Percentage Tax Return. It is due for payment or filing on or before 25th of the preceding month after the close of the quarter.For simple guide, you may refer below:
  • 1st Quarter – April 25
  • 2nd Quarter – July 25
  • 3rd Quarter – October 25
  • 4th Quarter – January 25 of next year

Any required attachment such as Summary Alphalist of Withholding Tax at Source (BIR Form 2307) on Percentage Tax Withhold by your customer, is also due for esubmission has similar deadline as above.

• BIR Form 2550Q – this form is for VAT registered. It is the Quarterly Value Added Tax (VAT) Return. It is due for payment or filing on or before 25th of the preceding month after the close of the quarter.For simple guide, you may refer below:
  • 1st Quarter – April 25
  • 2nd Quarter – July 25
  • 3rd Quarter – October 25
  • 4th Quarter – January 25 of next year

Any required attachment such as Summary List of Sales, Purchases and Importation (SLSPI) and Summary Alphalist of Withholding Tax at Source (BIR Form 2307) on VAT Withhold by your customer, is also due for esubmission has similar deadline as above.

• BIR Form 1701Q – this is the Quarterly Income Tax Return. It’s due for payment or filing on or before the 45th day after the close of the quarter.For simple guide, you may refer below:
  • 1st Quarter – May 15
  • 2nd Quarter – August 15
  • 3rd Quarter – November 15

Any required attachment such as Summary Alphalist of Withholding Tax at Source (BIR Form 2307) withhold by your customer, is also due for esubmission has similar deadline as above.

• BIR Form 1601EQ – this form is the Quarterly Return for Expanded Withholding Tax. This applies to you if you’ve been filing and paying BIR Form 0619E. This is due for filing on or before the last day of the month following the close of the quarter.For simple guide, you may refer below:
  • 1st Quarter – April 30
  • 2nd Quarter – July 31
  • 3rd Quarter – October 31
  • 4th Quarter – January 31 of next year

Any required attachment such as Quarterly Alphalist of Payees (QAP) of vendors you have withhold tax from, is also due for esubmission has similar deadline as above.

Yearly

• BIR Form 1701 or 1701A – this form is the Annual Income Tax Return. It’s due for payment or filing on or before April 15 after the close of the taxable year.Any required attachment such as Summary Alphalist of Withholding Tax at Source (BIR Form 2307) withhold by your customer, is also due for esubmission has similar deadline as above.
• Required Attachments to be submitted to RDO or via EAFS – mandatory attachments such as Audited Financial Statements (if VAT Registered), Creditable Withholding Tax Certificates (BIR Form 2307 and 2316), proof of esubmission of Summary Alphalist of Withholding Tax, and so on must be submitted 30 days after the annual income tax deadline. To learn more how to submit via EAFS, read here: How to File in EAFS?
• BIR Form 1604E – this form is the Annual Information Return for Expanded Withholding Tax. This applies to you if you’ve been filing and paying BIR Form 0619E and 1601EQ. This is due for filing on or before March 1 of the following year.Any required attachment such as Alphalist of Payees of vendors you have withhold tax from, is also due for esubmission has similar deadline as above.
• BIR Form 1604C – this form is the Annual Information Return for Compensation Withholding Tax. This applies to you if you’ve been filing and paying BIR Form 1601C. This is due for filing on or before January 31 of the following year.Any required attachment such as Alphalist of Employees you have withhold tax from, is also due for esubmission has similar deadline as above

Save time and automate preparation and submission of the tax forms and required attachments using MPM Accounting Software. To learn more, subscribe here: www.mpm.ph/tax

If you have employees, to save time in computing payroll and tax of employees, subscribe to MPM Payroll Software here: www.mpm.ph/payroll

Renew your licenses and permits annually

Once registered, you need to renew your licenses and permits to LGUs on or before January 20th of each year, if online sellers selling products.

For freelancer or self-employed professionals, make sure to pay your annual Professional Tax Receipt (PTR) or Occupational Tax Receipt (OTR) in the Mayor’s Office.

Conclusion

It is said that prevention is better than cure.

To avoid future headaches and problems, it is best to keep proper accounting records and do your tax compliance.

One good reason for keeping a good accounting record is that, your future investors for your expansion might require it someday. You will never know that your small/freelance/home-based business is the real next big thing.

If you have further question about the topic, please feel free to leave a comment. And if you liked this article, please share it to anyone whom you think can benefit from it. 🙂