Income Tax Hack: An Insider’s Guide to Preparing Your Philippine Income Tax in Record Time

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“The 1701 Form is making me crazy!
Hi Marie!
I’ve been reading your blog for a while now. It’s been really helpful, but
can you show me how to fill up the 1701 form?
I’ve read your blog post about it, but I’m not familiar with the lingo. Can
you break it down, as in parang nag-eexplain ka sa isang college freshman.
If it’s not too much to ask. I would really REALLY appreciate it.”
– Emerald –

Preparing an Income Tax Return is tough. I know. Everyone hates it. I know. Including accountants like me. That is why we put it off until deadline.

And become part of this group…

(I’m there somewhere!)

And if you see the 1701 Form, malulula ka talaga. 12 pages siya with confusing lingo like “manufacturing overhead”, “Cost of Sales”, “Tax Regime.” Whaaat??

And taking time to explain such lingo will take time. It is a full five year college course, right, with a Board Exam that you will have to take after.

But wait. Here is a simple walk-through.

This hack is only for self-employed/professionals, by the way, who chose to use Optional Standard Deduction instead of Itemized Deductions.

First, let me explain what is Optional Standard Deduction.

Optional Standard Deduction is a way of claiming deductible expenses equivalent to an amount not exceeding forty (40% percent) of gross sales or gross receipts (in the case of self-employed individuals and professionals). If you chose optional standard deduction in the first quarter of the year when you filed your 1701Q, it shall be irrevocable and consistently applied throughout the year. Thus, if you used Itemized Deductions in your Quarterly Income Tax Return for the First Quarter, you cannot choose Optional Standard Deduction on your Annual ITR.

When you choose OSD as your method of deduction, there will be NO NEED TO substantiate your expenses by means of financial statements and other documents.

*Non-resident aliens whether engaged or not engaged in trade or business in the Philippines cannot avail of the OSD.

Here are steps in filling up and filing your 1701 ITR:

STEP 1: DOWNLOAD the latest version of the Offline eBIRForms Package from the BIR Website.
STEP 2: Once you are in the eBIRForms menu, fill up the profile information the select the applicable BIR Form.
STEP 3: Fill up all the necessary information. A Job Aid is included in your downloaded package, by the way.
Taxable Income can be simply computed as follows, by the way:

Gross Sales /Receipts xxx

Less:Optional Standard Deduction                                           xxx
Net Income                                                                         xxx
Less: Personal & Additional Exemptions                                     xxx
Taxable Income                                                                    xxx
Tax Due                                                                              xxx

Now, let us assume you are a professional, married, your wife is not employed or engaged in business, you have one qualified dependent and you have the following deets on your BIR Form 2307 with no clue as to what to write down in your 1701 Income Tax Return:

Period (2014)	Income Payment	10% Creditable Tax Withheld
FIRST QUARTER	155,000.00	15,500.00
SECOND QUARTER	152,500.00	15,250.00
THIRD QUARTER	258,750.00	25,875.00
FOURTH QUARTER	253,500.00	25,350.00

To compute the Income Tax Due:

Gross Sales (1st to 4th Quarter Income Payments) Schedule 2, Item 1, Page 5	819,750.00
Less: 40% Optional Standard Deduction Part 1,Item 20, Page 1;Part IV, Item 61, Page 2	327,900.00
Net Income	491,850.00
Less: Personal Exemption Part IV, Item 45, Page 2	50,000.00
Additional Exemption (1 Qualified Dependent) Part IV, Item 46, Page 2	25,000.00
Total Exemption	75,000.00
Net Income Subject To Tax Part IV, Item 62, Page 2	416,850.00
Income Tax Due Part V, Item 68, Page 3	100,055.00
Creditable Tax Withheld – 1st to 3rd Quarters Schedule 9, Item 3, Page 9	56,625.00
Creditable Tax Withheld – 4th Quarter Schedule 9, Item 5, page 9	25,875.00
Tax Still Due Part V, Item 73, Page 3; Part II, Items 29, 28,30 & 32, Page 1	17,755.00

*for single proprietors, get the total of your gross sales for the year (make sure they match with the gross sales/receipts you declared in your Percentage or VAT returns)

**Professionals need to be registered with the BIR, by the way, and will be subject to income, business, withholding and other taxes. Don’t assume that you only have to file your taxes once a year

a. Add your total income payments (Sum of First, Second, Third and Fourth Quarter). The sum will be your Total Receipts for 2014 which you will input under Page 5, Schedule 2, Item 1.

b. The amount will auto-populate and will automatically be forwarded to Page 2, Item 50 (Net Sales/Revenues/Receipts/Fees).

c. Make sure you have filled up all the fields/information on page 1 and page 4, i.e., Optional Standard Deduction has been chosen, Item 15 on info about your spouse has been filled up, entered data about your spouse and dependents have been entered, etc.

d. Personal Exemption of 50,000.00 (Item 45, page 2), Additional Exemption of 25,000.00 (Item 46, page 2), and 40% Optional Standard Deduction of P327,900.00 will auto-populate based on the data you entered.

e.Go to page 9, Schedule 9. Fill up Item 3, Creditable Tax Withheld for the First Three Quarters by adding the 10% Creditable Tax Withheld from the First to Third Quarters (See Table).

f. Fill up Item 4 by putting the Creditable Tax Withheld for the Fourth Quarter.

(If you made Income Tax Payments for the First Three Quarters using 1701Q, enter the data on page 9, Schedule 9, Item 2. In this sample computation, I assumed that taxpayer has no quarterly income tax payments)

The data from e and f will be automatically forwarded to Item 73, Page 3.

g. Part II, Items 26 to 32 on page 1 will also auto-populate, revealing your total amount payable (Item 32)

STEP 4:Click VALIDATE, THEN SUBMIT.

STEP 5: Click Final Copy

STEP 6: Submit the Accomplished Tax Return. A Filing Reference Number (FRN) will be generated as proof that the return has been received by the bureau.

STEP 7: Click PROCEED TO PAYMENT (if there is any tax to be paid as in the example above and follow the existing procedures for ePAYMENT.