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Avoiding the hassles of the tax season

Cut the stress during tax paying time by keeping records orderly and filing your tax returns early
By Henry Ong |

As they always say, there are only two sure things in life--death and taxes--and stress is unquestionably an integral part of both of them. In the case of taxes, of course, that stress gets much more pronounced during the tax season.


For accountants, in particular, it\\\'s the season of long, sleepless nights in the office, crunching numbers to beat deadlines and placating harried employers and clients who demand that their tax payments be made as small as possible.


For taxpayers, on the other hand, it\\\'s the season for joining long queues at the offices of the Bureau of Internal Revenue or at the bank to file their income tax returns, even if they are still unsure if they got their numbers right and therefore fearful of a BIR audit later on.


Because of all that stress and fatigue, mistakes are very often committed in the preparation of Annual Income Tax Returns, with the usual unpleasant--and costly--results.


The most common of these errors are the following:

1. Incorrect TIN. The TIN, which stands for Tax Identification Number, has 12 digits. When a taxpayer files an income tax return and uses only nine digits, he normally assumes that the last three digits are zero. This is fine when the business for which the return is being filed is a sole proprietorship or an individual professional practice. When the business has several branches, however, the TIN is expanded to 12 digits. The taxpayer will get into trouble if he or she fails to include the last three digits, which will then be nonzero ones.


2. Incorrect tax computation. In computing for income tax, some items should not be included for tax computation purposes. These are what are normally referred to as the reconciling items between the net income based on the financial statements and the net taxable income payable to the BIR.


Two examples of this are interest income and depreciation. When interest income is credited to the taxpayer by a bank, the BIR has already taxed it at 20 percent.  That income should then be presented in the income statement as net of taxes. It should be excluded from the tax base when income tax is computed.  


As to depreciation, a very common source of erroneous tax computation is this situation: A business may opt to depreciate a newly purchased car for two years or even shorter, but the BIR may allow it only if that depreciation rate is the existing industry standard and practice. That standard happens to be a five-year life for fully depreciating the car. This means that for BIR purposes, the income statement needs to be restated to reflect the acceptable depreciation computed for the standard five-year life of the car.


3. Failure to attach BIR Form 2307. This form pertains to the Creditable Withholding Tax, which represents the deductions made by a payor--say, an employer--on behalf of the BIR as an advanced income tax payment of the payee--say, an employee. The payor then normally issues a certificate to the payee at the end of the year so that the latter--as a taxpayer--can deduct the corresponding amount from her total income tax payable to the BIR.


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