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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 10: Basic Income Tax Patterns

CHAPTER 10

BASIC INCOME TAX PATTERNS

Problem 10 1 TRUE OR FALSE

True

False - General professional partnerships are tax-exempt.

False Not taxable income the Philippines because the passive income is earned outside the Philippines.

True

False The excess of personal exemption over compensation income is to be deducted from net income
from business.

True

False Decrease by creditable taxes.

True

False passive income is not subject for deductions.

True

False There should be a combination of various income subject to the same tax rate irrespective of
personal exemption.

False Taxable only for income earned within.

False net income or income from operation.

False resident alien could also opt for OSD.

False Only P50,000. Siblings are not allowed for additional exemptions.

False could claim P150,000.

Problem 10 2

1. A

7. C

2.

8. A

3.
D

9. A

4. B

10.

5.

11.

6.

12.

Problem 10 3

Gross compensation income (P167,500 +P22,500)

P190,000

Less: Personal exemption single

50,000

Net taxable compensation income

P140,000

Tax on P140,000

P22,500

Less: Withholding tax

22,500

Net tax payable

P - 0 -

Problem 10 4

Gross compensation income

P 90,000

Net business income (P200,000 x 60%)

120,000
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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 10: Basic Income Tax Patterns

Total net income before personal exemption

P210,000

Less: Personal exemption

50,000

Net taxable income

P160,000

Problem 10 5

Net income for the first quarter (P50,000 + P60,000 + P70,000)

P180,000

Less: Optional standard deduction (P180,000 x 40%)

72,000

Net taxable income first quarter

P108,000
Note: No personal exemption yet is allowed to be deducted in the quarterly income tax. The Personal
th
exemption is to be deducted in the 4 quarter in the adjusted ITR.

Problem 10 6

Gross profit

P1,000,000

Less: Operating expenses

400,000

Net taxable income

P 600,000

Problem 10 7

Net taxable income (P5,500,000 P2,000,000)

P3,500,000

Multiplied by corporate income tax rate

30%

Income tax due and payable

P1,050,000

Less: Income tax paid

900,000
Net tax payable

P 150,000

Problem 10 8

Minimum corporate income tax (P23,500,000 + P1,500,000) x 2%*

500,000

Less: Income tax paid

500,000

Net tax refund

P -

The minimum corporate income tax is greater than the normal tax.

Problem 10 9

Compensation

P 250,000

Business income (P500,000 + P600,000)

P1,100,000
Less: Business expenses (P200,000 + P300,000)

500,000

600,000

Dividend income earned outside the Philippines

100,000

Net taxable income before personal exemption

P 950,000

Note: the dividend income within is subject to final withholding tax of 10%, and as such, is no longer required
to be reported in the annual tax return.

Problem 10 10

Compensation
P 250,000

Business income

P 500,000

Less: Business expenses

200,000

300,000
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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 10: Basic Income Tax Patterns

Net taxable income before personal exemption

P 550,000

Note: the dividend income is subject to final withholding tax of 10%, and as such, is no longer required to be
reported in the annual tax return.

Problem 10 11

Business income

P 500,000

Business expenses

( 200,000)

Net taxable income

P 300,000

Note: Foreign corporation is taxable only for income within. Dividend income earned within is taxable in the
Philippines but shall not be included as part of the annual ITR because such dividend is subject of final tax.
Problem 10 12
Total salary income (P16,000 + P4,000) x 12

P240,000

First three quarters taxable business income (P300,000 + P90,000)

390,000

Last quarters net taxable business income

110,000

Total net income before personal exemption

P740,000

Less: Personal exemption single

50,000

Net taxable income

P690,000

Income tax on P500,000

P125,000
Income tax on excess (P190,000 x 32%)

60,800

Total income tax per ITR

P185,800

Add: Final withholding tax on interest income

2,000

Annual income tax

P187,800

Problem 10 13
Answers for 1 and 2

QUARTERS
Second

Third

Fourth

First
Gross profit 40% of sales

200,000

240,000

160,000
360,000

Rent income

30,000

30,000

30,000

30,000

Total gross profit

230,000

270,000
180,000

390,000

Operating expenses before int. & cont.

(120,000)

(150,000)

(100,000)

(160,000)

Deductible interest expense*

(5,050)
(6,700)

(10,050)

(8,400)

Contribution deductible in full

(20,000)
(40,000)

.
Net taxable income

104,950

93,300

69,950

181,600

Multiplied by corp. income tax rate

30%

30%

30%
30%

Quarterly income tax due and payable

31,485

27,990

20,985

54,480

Interest expense

10,000

10,000
15,000

15,000

Less: Tax differential (int. income x 33%)

4,950

3,300

4,950
6,600
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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 10: Basic Income Tax Patterns

*Deductible interest expense

5,050

6,700

10,050

8,400

Answer for 3

Royalty income (P60,000 x 20%)

P12,000

Interest income (P15,000 + P10,000 + P15,000 + P20,000) x 10%

12,000

Total passive income tax

P24,000

Problem 10 14
Business income

7,500,000

Itemized allowable deductions

4,000,000)

Capital gains
200,000

Passive income earned outside the Philippines

100,000

Net taxable income

3,800,000

Multiplied by corporate income tax rate

30

Income tax due

1,140,000
Less: Total income taxes paid in the previous quarters

P800,000

Income tax withheld per BIR form 2307

40,000

840,000

Income tax still due and payable

300,000