5 Benefits of Registering, Filing and Paying Your Taxes as Freelancer or Self-Employed
The popularity of freelancing or self-employment has been growing over the past years. Due to the availability of technology and internet connection, it is much easier now to work anywhere with flexibility of time which result to the increase in preference of freelancing or self-employment over the traditional employee-employer relationship.
However, just like owning a business, freelancing or self-employment has its benefits and challenges.
Here are sample benefits of freelancing or self-employment:
Flexibility to work at home or anywhere instead of working at the office.
Save time on commute especially if you work from home.
Save cost on transportation and food when you eat out.
Higher income brought by payout in foreign currency if your customers are outside the Philippines.
Option to lower tax payment to 8% flat income tax rate instead of 0-35% if employed.
Option to use self-employment related expenses to lower tax due payment.
However, there are also challenges on freelancing or self-employment such as:
Less stability and security of income compared to employment.
Higher pressure to produce high quality work to satisfy and retain client.
Responsibility in filing and paying your taxes on a monthly, quarterly, and annual basis.
Responsibility to keep accounting records of your transactions on a daily or monthly basis.
Inconsistent cash inflows and income
More tasks on your plate from sales, marketing, customer service, finance, and actual delivery of the service you were engaged to do unlike when you are an employee assigned to a specific task or department only.
Since freelancing or self-employment can be more time consuming than employment due to the increased in responsibility in your shoulder, as such, you may tend to give less priority and time to do your basic legal obligation, which is to register, file and pay tax. And when discovered later, you may pay penalties in the Bureau of Internal Revenue (BIR).
In this article, I will enumerate the 5 benefits of registering, filing, and paying your taxes as freelancer or self-employed. 1. Legalize your Freelancing or Self-employment Registering your freelancing or self-employment increases your credibility and accountability because it gives your customer assurance that you will do your job well because you have registration to protect.
On the other hand, if you do not register your freelancing or self-employment, it can give an impression to your customer that they cannot trust you will deliver the service to which you are engaged.
At the same time, not registering your freelancing or self-employment may cause you problem with the BIR. If caught, there will be payment of penalty for failure to register, file, and pay your taxes, and the worst-case scenario, lawsuit for tax evasion with 6-10 years imprisonment.
2. Ability to Issue BIR Registered Official Receipt Oftentimes, when you receive payments for your service, your customers will ask for a BIR registered official receipt. They use it as proof of their expenses. As such, if you do not have BIR registered Official receipt, it may limit your ability to get client and grow your freelancing or self-employment.
However, if you legally register your freelancing or self-employment with BIR, you can now register and issue official receipt whenever you receive payment from your customer. On the other hand, as shown in the Notice to Issue Receipt and/or Invoice (NIRI), failure to issue BIR registered official receipt may result to 2-4 years imprisonment.
3. Increase Credit Standing or Bank Credit Access When you are a freelancer or self-employed, it is harder to prove your financial stability because freelancing or self-employment is riskier compared to full time employment. As such, it makes it more difficult to apply for any credit such as loans due to the perceived instability.
But if you register as freelancer or self-employed, and if you are regularly filing/paying your taxes, it increases your credibility financially as your tax filing is used as your proof of source of income which creditors used as basis for lending or loan such as car loan, home loan or credit card grants.
4. Requirement for Visa Application Approval Another benefit of registering, filing and paying your taxes as a freelancer or self-employed is for your travel goals, especially to Japan, South Korea, Europe, or any visa countries that you want to travel to.
These travel destinations often require registration documents and income tax return as one of the documents submitted for visa approval.
5. Proof of Income and Work Experience Last but not the least benefit of registering, filing, and paying your taxes as a freelancer or self-employed is proof of income.
With employment, your proof of income is the BIR Form 2316 Certificate of Compensation Payment and Certificate of Employment. But with freelancing or self-employment, your proof of income is your registration and tax filing as a freelancer or self-employed.
If you are a freelancer or self-employed without registering and filing your taxes, it may be harder to show proof of your work experience and income.
Just like if you want to travel abroad, the immigration officer may ask for your proof of income. And normally the registration document and income tax return filing will be our proof of income.
Ready to start registering, filing, and paying your taxes? To start, it is important to first do proper registration in the Bureau of Internal Revenue.
To properly guide you, you may read this article as well, Bookkeeping and Tax Compliance for Freelancers or Self-Employed Professionals.
If you do not have time to do your registration, we can assist you. Just email us at dinez100685@gmail.com or call/text +639661680008.
Lastly, for simplified and efficient bookkeeping and tax filing, subscribe to this site.
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