How to manage and avoid BIR TAX audit

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Tuesday, October 14, 2014

Bitpay and Paypal accredited

We are now officially accredited by Bitpay and we will now officially use bitcoin as part of our website acceptable currency.



Apart from Bitpay we are also using Paypal as one of the acceptable payment tool for all our transactions. We are using these two payment options for they are both widely used and accepted as online currency.


Kindly let us know if you encounter any problem with these two payment options. If you also want to know more about these payment options or want to have your own account and open a new one please message us so we can give you detailed instruction on how to get one.

Thanks

Thursday, October 9, 2014

Web Online Payroll and Accounting System

We just want to announce that our main website http://www.taxgadget.com will be the home of your web online payroll system and online accounting system. We plan to offer it for free for everyone to use it on their everyday needs.


We already launched the project development and it will take sometime before it becomes available here but we plan to have a soft launch for our beta version.  If you are an accountant then you will benefit most from these two web base online system.  Imagine you would be able to do your work online,anytime and anywhere or even at home.  The best part of this is it is free for everyone to enjoy.  You just need to create your online account to access the system and its features.  For web online payroll, we will be implementing web-based payslip for every employees which they can also access anytime and anywhere using their mobile devices like iphone or ipad.  With this feature you need to enroll your employees to get access to the system as well.

On top of the web online payroll, we will also be launching an online accounting system which will be working independently with the online payroll system.  The two systems will be integrated for smooth processing of transactions.

Next week we will be implementing our online member registration in preparation with these two systems implementation.  

So if you tumbled on this site please have it bookmarked and please visit it from time to time for our future updates.

Watch out for our big launch.

Cheers!




Sunday, October 5, 2014

Value of Financial Reports

Some businessmen really knows how to make their business profitable by using their skills in the field of their chosen industry. They become successful because they also used and grab the benefits of quality financial reports. When we say QUALITY it means that the reports must be RELIABLE, ACCURATE, and most of all TIMELY.

When you do your business dont just focus on checking how much cash you have or how much tax you need to pay.


Remember tax is just one thing. But in order for you to have money, earn profit and make your business grow... YOU NEED TO USE QUALITY FINANCIAL REPORTS.

Ok, what financial reports are we talking about here? Is it enought to have a monthly income statement to see if you are making a profit? That is not enough, and each report must be used by managements before they make any decisions. Here are the financial reports that you need to have for your business:

1. Cash Position Report. I intentionally put it here as first for most of the company are using this to monitor their cash on a daily or weekly basis. This is essential for your daily operation. The report must reflect your actual cash balance as your beginning amount then you need to add your deposited receipts or collections for the period then you need to deduct your cleared disbursements to arrived at your actual  cash balance. Actual cash balance is needed for you to know your available room for making further disbursements. That is just the first part of the cash position report. The second part is by adding the undeposited funds and deducting unreleased disbursements to get the balance per book. This is important in cash management and this will give you room to manage which checks are for release first on the basis of priority if your funds is in critical stage. The last part of the report is your projections. You can set a two weeks projections just to be safe. Projections are your projected cash collections for the next two weeks and you also need to estimate your two weeks disbursements. It does not need to be exact but you need to be close to accurate to serve its purpose. Take note that this report will only show you of your cash status and it does not reflect your business profitability. But it goes that when your business is profitable more or less your cash position will also reflects a high amounts.

2. Income Statement. This report will show you your business profitability. If you have different line of business then you can design it on a per line of business then consolidated on a per company basis. To make it more useful you need to add a comparison on your last month's figure to determine which item increased by how much and what percentage. This method is called variance analysis. To make it further meaningful you can add another comparison as against your last year figures. Do the same thing on your year to date balances by comparing it as against last month and last year figures. The figures and variances wont be usefull if you wont analyse the reason for such variances. Your accountant must include the reason why your revenue increases and point out exactly the items that drives the increase. Lets say there is a big jump in salaries and wages, then your report must say the cause of such jump like annual salary increase or hiring of additional employees and so on. For the management does not always remember the things that transpirw during the period. The report must reflect it so that management can make their next decisions based on your reports. For example you noticed a 50% decrease in your telephone cost. Even though it is a decrease you still need to know the reason why because for all you know it is not really a decrease or savings for it maybe due to the late billings from your telephone company and for which your accountant must have setup an accruals to make your report much accurate. Speaking of accruals, i will discuss this separately for it needs a lengthy space and i dont want to clutter this topic with lots of sideways discussion. Your income statement will show your company profitability.

3. Balance Sheet. This report will show you how much assets you have and the type of each assets based on classification. You will also see here your existing liabilities and net worth. This report will also shows you your asset ratio, current ratio and liquidity ratio. I will discuss the ratios in a different post. But for current ratio this will show if you have enough current assets as against your current liabilities. The higher the ratio the better. As your business grows your assets also grows and your liabilities decreased while your net worth increased. You can also prepare it in a comparability mode to see any variance as against last month. Your balance sheet will show company stability.

4. Cash Flow Statement. This report will show you your cash movement and from which business activities it were generated. You can prepare it either using direct or indirect method. Either way it will result the same thing.

5. Statement of Changes in Owner's Equity. This report will show you movement on your capitalization, accumulated income, dividends, appropriations etc

6. Break-even analysis and net present value. This report is usefull particularly if you are in the process of making or creating another type of business or investment. This report will guide you on when you are going to break even and at what amount or number of sales needed. The net present value will show you the value of your investments by using the cost of money. This method makes your analysis more realistic particularly if part of your funds are being invested somewhere or funds are partly borrowed. You may not appreaciate this for mow but im telling you this report is needed before you make any decisions. Dont be deceived by just seeing absolute amounts. Use this method to make your figures realistic.

The above reports are necessary for your business. There are still other reports that you may need depending on your type of business. Other minor reports such as payroll reports, collection report, disbursements report, etc can be prepared separately.

If you need an example of these reports you may request it to me of visit our download page. I will post samples there for your reference.

Thanks




Sunday, September 28, 2014

How to compute income tax for corporation

If you are an accountant or owner of your business then you are required to file and pay your income tax quarterly and annually. For quarterly income tax you can file and pay even without an audited financial yet. But for your annual income tax return you need to file together with your audited financial statements certified by a Certified Public Accountant accredited by the Board of Accountancy and BIR.


You need to compute it accurately to avoid paying penalty if you got audited by the BIR.  Just in case you got audited by the BIR or currently have existing tax case, please refer to my other post here on how to handle BIR tax audit or you may also refer to my post on how to avoid tax problems.

Going back to my main topic, there are three main items that you need to focus more in preparation your income tax return which are:

1. SALES -this will include all your sales consolidating all your branches sales if you are filing under consolidated. You need to also note and record separately the sales discounts and sales return and allowances. If you want to check if your figures are correct you may cross refer it to your VAT computations. These figures must tally to make sure all are account d for. If not then either one of the two is wrong and you may be having possible tax exposure here.

2. COST OF SALES -whethere you are using perpetual or periodic inventory system you need to account this accurately for for this is one of the three big ticket items in your income tax return and one of the most critical items being audited. But if in case you accidentally  made an error in computing this item then dont worry that much for the error here will self correct. Yes you read it right SELF CORRECT. Any error made for computing ending inventory will have yhe same effect in your next year beginning inventory and the effect will be negated that is why it will self correct.  If you are classified as top 10,000 corporations then make sure that this account tally with your withholding tax alphalist to make sure you did not missed any item. If the amounts does not tally then you better check why for it will be another possible tax exposure for your company.

3. EXPENSES -this item is the most audited item among the three for it will be further disected into small accounts. Each account has each own unique features which you need to understand. Proper classification is the key here for it will be checked item per item. There are accounts that you need to check and monitor totals for the BIR set limits on an account level. Sample of these are representation expense, interest expense, and charitable donations. I will explain furthere below each limitation set for each account. On top of this you also need to cross check the amounts of certain accounts to your withholding tax reporting like rentals, professional fees, salaries and wages, etc. 

We are not done yet. Aside from your  business transactions coming from your disbursement and receipts for your expenses and revenues you also need to account non cash expenses. Sample of this is the depreciation expense for your equipments. For this item you need to prepare your lapsing schedule to tie up your numbers. With your lapsing schedule you can immediately tally your equipment total cost, depreciation and accumulated depreciation amount.

Now lets compute:
SALES
Less: COST OF SALES
GROSS PROFIT
Less: EXPENSES
NET INCOME
x 30%
INCOME TAX DUE

That is the straight forward computation of your income tax due. If will only change on your 4th year of operation which you will now be subjected to minimum corporate income tax of 2% of your gross sales or receipts. The tax due will be the higher between regular corporate income tax or the minimum corporate income tax. Yes you will still be liable to income tax even if you have a net loss for you will be paying on a minimum the minimum corporate income tax of 2% (MCIT).

Is that seems unfair to you? In essence it will not be for you can claim as tax credit the amount that you will pay under MCIT and you can use it to pay your future regular income tax.

Another thing to note in our local taxation where individual taxpayer pay more taxes than corporations. The rate for individual is at 32% while corporate is only at 30%. So in essense there is a clear advantage to operate using corporation and it is very easy to setup a corporation and it will not cost you much.

I have tools and excel templates which you can use and you can download it in my download page. Check it out.

If you need help on taxes and accounting please email us and we will find ways for your company.




Friday, September 19, 2014

How to avoid BIR TAX audit

You have done your part to make your business grow and make it more profitable than ever. Your business operations took almost every single hour of your precious time. But at the end of the day you noticed that you no longer have time for your administration and can no longer handle tax issues.


Do you know that if you failed to keep your records organized the Bureau of Internal Revenue can easily charge you for tax fraud? Yes this is true and commonly happening to a lot of taxpayers right now.  Normally an ordinary tax audit only lapse for a period of three years but when BIR charged you of fraud then you are in trouble for it automatically gave them ten years to finish your tax audit and by that time the interest and sucharge is already at 300%.  Imagine that scenario and you would ask yourself where will you get that amount of money to pay for the BIR assessment.

It is very difficult to be in that situation. Yes I know for I have handled lots and lots of tax cases for my clients.  But dont worry, by this time while reading this post of mine you would be able to prepare for the BIG PROBLEM and avoid this thing to happen.

Here are the list of things that you need to do to save your company from the BIR TAX AUDIT:

1. Keep your books of accounts and journals updated all the time. You will need this, believe me.

2. Once in a while try to sit down with your accountant to discuss taxes, current tax issues, and your tax compliance status. You need this to address issues right away and ahead of time and also avoid surprises. I hate surprises.

3. Keep all your records organized and well indexed for easy retrieval. You need this to justify your figures when tax audit comes. One lost receipts is a possible tax assessment if you cant further prove it.

4. Try to keep your accountant as long as you can for he knows most of your transactions. Remember BIR TAX audit will come years from now and you dont want to have a new accountant that will just answer you that those transactions is not during his time.

5. If you have extra budget I suggest that you get a consultant who would do your tax compliance evaluation. It is a pre-audit process to determine whether you have tax exposure or not. If ever there are findings you can fix it even before the actual BIR tax audit comes.

This is not all but the above items will help you in some way. You can also implement tax savings schemes and tax compliance system for your company. Most of the company dont have this implemented yet until they got audited bu the BIR.  Those ones that were audited by the BIR already learned their lessons and they paid it big time. Dont be one of them to regret at the end of the day.  Prepare ahead of time and avoid BIR TAX AUDIT PROBLEM.

If you need help on your tax problem then just talk to us and we will find solutions for your business.

Thanks 

The Essence of Knowing How To Compute Compound Interest

Can you recognice this picture? Does it seems complex or something algebraic equation to you? Though it may seems that way but it is much simpler than you thought of it. In all things that we encounter we oftenly thing of difficulty especially if we dont put interest on it. Yes getting interested into something is the first thing that will trigger your curiousity to know more about that thing. Once you get interested then you will put more effort like by studying it to learn more and eventually achive your goal.

Now what will make you more interested in knowing how to compute compound interest? Lets think of your money and how you can grow it more to its fullest potential.  Still interested or not yet? 

Einstein’s famous quote: “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.

If you know Einstein and you believe in his works and legacy then you better be interested by now for I know you dont want to be in the group of people that ... Pays it.. 

Compount interest is the method where your principal earns interest on a certain defined period lets say monthly and after that first period ends your new principal will now be the combination of your original principal plus the interest earned. Then doing it over and over until the end of the terms or until the end of the given number of periods.  Meaning it accumulates and the earning capabilities increases as it moves from period to period.

If you will apply this concept to a very simple business like trading, by having a startup capital lets say $ 100,000 then after a month of operation you earned $5,000. If you will roll that over including the $5,000 you earned to make it now $105,000 then your earning potential also increases. Then if you will do this continiously then your business will grow significantly. On the otherhand if you will spend the $5,000 for something else rather than reinvesting it to your business, and if you will do this every single time you earn then your business will just be the same even after 10 years.

Compunding is like making your money works for you rather than you working for money.

With my background in accounting and for servicing different types of clients I manage to learn a lot as well.  With this learnings, Im using it to give quality advice and financial consultaions with my other clients and future clients as well.

If you need help or assistance please contact me and I will be glad to assist you.

Thanks