In celebration of the Micro, Small, and Medium Enterprises (MSME Day), we discuss some tax rules and tips that can help business owners!
Paying taxes is a responsibility every business owner must take seriously. But let’s be honest—taxes can be confusing. Many small businesses struggle with tax filing, deadlines, and understanding the necessary steps to take. If you’re not careful, mistakes can lead to penalties, legal issues, or even business closure. The good news? Tax compliance doesn’t have to be complicated. This guide will break it down in simple terms, so you can avoid costly mistakes and focus on growing your business.
Why Following Tax Rules Matters
Taxes help keep businesses running legally and support the economy. The Bureau of Internal Revenue (BIR) verifies that businesses are paying the correct taxes. If you fail to comply, you could face heavy fines, legal troubles, or even a business shutdown.
Example: A sari-sari store owner forgot to file her VAT returns for six months. The BIR charged her a 25% penalty plus interest on unpaid taxes. This unexpected expense put a strain on her finances. (BIR Tax Code)
Lesson: Staying updated with tax requirements saves you money and helps your business grow without legal problems.
Common Tax Mistakes (And How to Avoid Them!)
- Missing Deadlines – Mark your calendar or set reminders for tax filing dates.
- Wrong Tax Computation – Mistakes in numbers can lead to penalties. It helps to use accounting software or consult an accountant.
- Poor Recordkeeping – Keep receipts, invoices, and ledgers for at least five years to avoid tax issues.
- Not Registering Your Business Properly – Ensure you’re registered with the BIR, SEC (for corporations), or DTI (for sole proprietors) and update any business changes.
- Not Withholding Taxes for Employees – If you have workers, you must withhold and remit their taxes.
- Ignoring Corporate Governance Rules – If you own a corporation, your financial statements must match what you report to the SEC and BIR.
- Trying to Avoid Taxes Illegally – Some businesses try to lower taxes using illegal strategies. This can lead to legal trouble and damage your reputation.
Example: A small food stall didn’t issue official receipts to customers. The BIR audited the business, found unreported sales, and charged tax penalties. Installing a point-of-sale system helped fix the issue and align with legal requirements. (DOF Case Study)
Key Takeaway: Small tax mistakes can become big problems. Keeping things simple and organized can prevent unnecessary expenses.
How to Keep Your Business Tax-Compliant
- Register Your Business Properly – Get a Taxpayer Identification Number (TIN) and secure the right permits from the BIR, SEC, or DTI.
- Understand Your Tax Obligations – Know which taxes apply to your business, like VAT, percentage tax, or income tax.
- Keep Good Records – Store all business receipts and documents for easy reporting.
- Use Online Tax Filing – The BIR’s eFPS and eBIRForms make filing easier and help avoid errors.
- Hire a Tax Professional or Legal Expert – Accountants and corporate lawyers can guide you to follow tax laws and business regulations properly.
- Match Your Tax Returns with Financial Reports – Corporations should ensure that tax filings are consistent with financial statements submitted to the SEC.
Example: A growing online store started using accounting software to track sales and expenses. This made tax filing easier and ensured they followed the law.
Why This Matters: Proper tax management helps avoid penalties, improves your financial standing, and makes your business more credible.
How to Keep Your Business Tax-Compliant
Taxes don’t have to be scary. By understanding the basics, staying organized, and using the right tools, you can avoid costly penalties and legal issues. Whether you run a small business, a startup, or a corporation, following tax laws ensures your company stays secure and successful.
Reminder: Staying tax-compliant is not just about avoiding fines—it’s about running a business the right way!
Disclaimer: The content of this blog is for informational and educational purposes only and should not be considered as legal advice. While we strive to provide accurate and up-to-date information, the blog does not create an attorney-client relationship. For legal concerns or specific legal guidance, please consult a qualified lawyer.
To read more STLAF legal tidbits, visit www.sadsadtamesislaw.com/bits-of-law.
For comments, suggestions, and inquiries, email legal@sadsadtamesislaw.com.
Author/s: Justine de Leon | Accounting Department