It’s tax time again. If you’re working for a single employer, the date wouldn’t matter much, since your taxes have already been withheld every payroll date. Otherwise, if you’re self-employed, working with different employers, or running your own business, it matters a lot. So how can you make sure you keep more of your income and give less to the government?
1. Maximize exemptions
The great news for taxpayers, especially for the hapless employees who have very limited ways to cut down on income taxes, is that the government has raised personal exemptions, which were implemented in 2008. The basic personal exemption for individual taxpayers increased from P20,000 for single, P25,000 for head of the family, and P32,000 for married individual to P50,000 regardless of the civil status; while the additional exemption for qualified dependents went up from P8,000 to P25,000.
2. Maximize deductions
Now, if you’re self-employed or run your own company, your business can lower its taxes by opting for either itemized deductions or the revised optional standard deductions (OSD). A new law increased the rate of the OSD for self-employed individuals from 10% of gross income to 40% of gross sales or receipts; and for corporations 40% of gross income, both in lieu of the itemized deductions. That means less paperwork and hassle of substantiating allowable deductions. However, if your itemized expenses are higher, then opt for that.
3. Lower your gross income
Minimum wage earners are now exempt from income tax. You’re not a minimum wage earner, so it wouldn’t be apply to you. But there are other ways of lowering your gross income, short of under-declaring it. You can defer income, such as your business income or your employee commission, in the last couple of months of the year to the following year. You can check with your accounting department if the benefits given you can be considered de minimis benefits, i.e. which aren’t subject to withholding tax, if you’re in a managerial position.
4. Invest in tax-exempt or tax-deferred instruments
Investments for more than five years are tax-exempt, so increase your long-term savings and gain an automatic 20% on your investment income, which otherwise would have been remitted to the government.
5. Spend less
It probably didn’t occur to you but the more you spend, the more taxes you pay, no thanks to the 12% value added tax (VAT) imposed on practically everything you purchase or spend for. Or buy some items from mom-and-pop stores that are non-VAT entities.