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Income Tax of Individuals: Income Taxation 5Th Edition (By: Valencia & Roxas)
Income Tax of Individuals: Income Taxation 5Th Edition (By: Valencia & Roxas)
CHAPTER 11
INCOME TAX OF INDIVIDUALS
Problem 11 1 TRUE OR FALSE
1. False Qualified dependent parents and siblings are not entitled for additional
exemption.
2. False must be more than 180 days.
3. False NRA NBT are not allowed for personal exemptions.
4. True
5. True
6. True
7. True
8. True
9. True
10. True
11. False No personal exemption is allowed to NRANEBT.
12. True
Problem 11 6 A
Income from the Philippines (P10,000 x 12) P120,000
Less: Personal exemption single 50,000
Income subject to tax in the Philippines P 70,000
Note: It is assumed that Juan works as OFW for more than 183 days. Income earned by OFW
outside the Philippines is not subject to tax in the Philippines. The income from the sari-sari
store in the Philippines is earned from January to December of the taxable year.
Problem 11 7 C
Gross compensation income Philippines (P250,000 x 12) P3,000,000
Multiplied by special income tax rate 15%
Income tax payable P 450,000
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 70
Chapter 11: Income Tax of Individuals
Problem 11 8 A
Basic personal exemption of couple:
Husband P50,000
Wife 50,000
Additional exemptions:
4 qualified dependent children (P25,000 x 4) 100,000
Maximum amount of personal exemption P200,000
Problem 11 9 C
Only P50,000 basic personal exemption because the taxpayers category is single.
Problem 11 10 B
Basic personal exemption Married P50,000
Additional exemption 25,000
Total personal exemptions P75,000
Problem 11 11 C
Basic personal exemption P50,000
Additional exemption (a & b only) (P25,000 x 2) 50,000
Total personal and additional exemptions P100,000
Problem 11 12 A
Basic personal exemption married P 50,000
Nonresident alien engaged in business in the Philippines is allowed of basic personal exemption
subject to limit, but additional exemption is not allowed. Personal exemptions for foreigners are
subject to the rule of reciprocity with limit of whichever is lower.
Problem 11 13 A
P200 per month. For the month of December only.
Problem 11 14 D
No special deduction is allowed. The family income exceeding P250,000 is not allowed for a
special deduction for health insurance.
Problem 11 15 D
Zero. Maria has no income.
Problem 11 16 A
No net tax payable at the end of the taxable year because the senior citizens income does not
exceed P60,000 during the year. The tax withheld from interest income is final tax.
Problem 11 17
Subject to
1. Not in the choices = P790,000 & P160,000 Tabular tax Final tax
Compensation income P240,000
Business and other income:
Professional income (P300,000 + P200,000) 500,000
Interest income without 60,000
Dividend income without 40,000
Total net income before personal exemption P840,000
Less: Basic personal exemption single ( 50,000)
Net income to ITR tabular tax P790,000
2. A
Compensation income P240,000
Business income:
Professional income 300,000
Total net income before personal exemption P540,000
Less: Basic personal exemption single 50,000
Net income to ITR tabular tax P490,000
Note: The problem is silent as to whether the taxpayer opted for OSD, hence, OSD should not be
deducted from the business gross income. In order to qualify for OSD, the taxpayer should
indicate in his return that he is opting OSD instead of itemized deductions. (Sec. 34 (L), NIRC)
Problem 11 19 D
Compensation as researcher P 600,000
Less: Personal exemption married 50,000
Net taxable compensation income P 550,000
Problem 11 20 D
Capital gains tax on shares of stock (P80,000 x 5%) P 4,000
Capital gains tax on sale of land (P2,000,000 x 6%) 120,000
Total capital gains tax paid P124,000
Problem 11 21 B
1. B
Final tax on copyright royalty (P11,250/90%) x 10% P 1,250
Final tax on mineral claim royalty (P12,000/80%) x 20% 3,000
Final tax on share from trading partnership as dividend (P270,000/90%) x 30,000
10%
Total final tax P34,250
Problem 11 22 B
Percent of service 100%
Add: Output VAT 12%
Total 112%
Less: Withholding tax 20%
Percent of net proceeds 92%
Problem 11 23
1. A
Salaries of assistants P 96,000
Traveling expenses 11,000
Light and water, Office 7,890
Stationeries and supplies 1,960
Office rent 60,000
Total expenses before contribution P176,850
Add: Contribution subject to limit (P500,000 P176,850) x 10% 32,315
Total allowable deductions P209,165
2. C
Professional fees P500,000
Less: Allowable deductions 209,165
Net income from business P290,835
Add: Income from compensation:
Allowance as director of Corporation A P25,000
Commissions 5,000 30,000
Net income before personal and additional exemptions P320,835
3. D
Net income before personal and additional exemptions P320,835
Less: Personal and additional exemptions:
Basic widower P 50,000
Additional exemptions (P25,000 x 3 qualified children) 75,000 125,000
Net taxable income P195,835
Problem 11 24
1. P164,200
Net worth, December 31, 2009 P375,000
Less: Net worth, December 31, 2008 325,000
Unadjusted Net income for year 2009 P 50,000
Add back: Non-deductible expenses 150,000
Contributions (P20,000 + P50,000) 70,000
Total P270,000
Less: Non-taxable income 2,000
Income before contribution P268,000
Less: Contributions:
Deductible in full P 20,000
With limit
Actual, P50,000
Limit, P268,000 x 10% = P26,800
Allowed 26,800 46,800
Net income before personal exemptions P221,200
Less: Personal exemptions (P50,000 +p100,000) 150,000
Net taxable income P 71,200
2. P140,000
Corrected net taxable income P 71,200
Less: Reported net income subject to tax 24,200
Unreported taxable income P 47,000
Problem 11 25
1. Itemized deduction
Compensation income P 20,000
Gross income from business P 400,000
Less: Itemized deduction 150,000 250,000
Total income before personal exemptions P270,000
Less: Personal exemptions
Basic personal exemptions P 50,000
Additional exemptions (P25,000 x 4) 100,000 150,000
Taxable income P120,000
Problem 11 26
2010 net income from business P 600,000
Capital gains transactions
Short term capital gains (P40,000 x 100%) P 40,000
Long term capital gains (P30,000 x 50%) 15,000
Short term capital loss (P10,000 x 100%) (10,000)
Capital gains P45,000
Less: 2009 Capital loss carry over limit 35,000 10,000
Income before personal exemptions P 610,000
Basic personal exemption- married P 50,000
Additional exemption (P25,000 x 3) 75,000 125,000
Taxable income, 2010 P 485,000
Note: The applicable capital loss carry-over should only be limited to P35,000, because it should
not exceed the net income from operation of such year (Sec. 39D, NIRC).
Problem 11 27
1. Compensation income (P240,000 + P30,000) P270,000
Less: Personal exemption (P50,000 + P25,000) 75,000
Net taxable compensation P195,000
Business income P100,000
Less: Business expenses 120,000
Net loss from business (P20,000) 0 -
Net taxable income P195,000
Problem 11 28
1. Salary (P30,000 x 12) P360,000
Add: Taxable 13 th month pay (P35,000 P30,000) 5,000
Total P365,000
Less: SSS contribution P3,000
Medicare/Philhealth contribution 2,000 5,000
Taxable compensation income before personal exemption P360,000
Less: Personal exemption 50,000
Net taxable compensation income P310,000
Problem 11 29
1. Entertainment fee (P1,700,000/85%) P2,000,000
Business income
Philippines 500,000
Japan 1,000,000
Net income before personal exemption P3,500,000
Less: Personal exemption - basic P50,000
Additional (P25,000 x 4) 100,000 150,000
Net taxable income P3,350,000
Note: The OSD is not used because the problem is silent that the taxpayer opted to utilize it.
OSD is allowed only if the taxpayer indicated in his return that he is using it otherwise he is
using itemized deduction. If the taxpayer did not indicate that he is using OSD and at the same
time he has no itemized deduction, he cannot deduct expenses from his gross business income.
(Sec. 34 (L), NIRC)
3. Tax credit
Creditable withholding tax on fees
(P2,000,000 x 15%) P300,000
Business income tax paid - Philippines 40,000
Japan (P1,037,000 x 1,000,000/3,500,000))
P296,286 vs. actual P300,000, lower 296,286 P 636,286
3. Tax credit
Creditable withholding tax on fees
(P2,000,000 x 15%) P300,000
Business income tax paid - Philippines 40,000
Japan (P589,000 x 594,000*/2,100,000))
P166,603 vs. actual P300,000, lower 166,603 P 506,603
Problem 11 30
Mr. Bravo Mrs. Bravo
Gross professional income (P100,000/90%) P111,111
Rent income (P300,000/2) 150,000 P150,000
Gross compensation income 225,000 300,000
Total P486,111 P450,000
Less: Personal exemptions 150,000 50,000
Net taxable income P336,111 P400,000
Note: No OSD is allowed because the taxpayer did not opt to use it in lieu of itemized deduction.
(Sec. 34 (L), NIRC)
Problem 11 31
1. P290,000
Compensation income P300,000
Taxable 13 th month pay and bonuses (P40,000 P30,000) 10,000
Net business income (P400,000 P300,000) 100,000
Capital gains long-term (P60,000 x 50%) 30,000
Total P440,000
Less: Personal exemptions (P50,000 + P100,000) 150,000
Net taxable income P290,000
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 77
Chapter 11: Income Tax of Individuals
2. (P8,000)
Tax on P250,000 P 50,000
Tax on excess (P40,000 x 30%) 12,000
Total income tax due P 62,000
Less: Income tax paid on:
Compensation P 50,000
Quarterly business income 20,000 70,000
Income tax refund (P 8,000)
Problem 11 32
Problem 11 33
1. 13 th month pay P25,000
Other benefits:
Excess of clothing allowance (P4,500 P4,000) P 500
Excess of rice subsidy (P1,600 P1,500) x 12 1,200 1,700
Total (not exceeding P30,000) nontaxable P26,700
Allowable de minimis:
Clothing allowance P4,000
Rice subsidy (P1,500 x 12) 18,000 22,000
Total 13 th month pay and other benefits P48,700
Problem 11 34
Note: OSD is not applicable unless the taxpayer signified in his ITR that he opted to use OSD in
lieu of itemized deductions. (Sec. 34 (L), NIRC)
*Allowable tax credit paid outside the Philippines is lower than tax limit or actual tax
paid. The tax credit is computed as follows:
Note: The actual tax paid outside the Philippines is lower than the computed tax limit;
hence, the actual tax paid without is the allowable tax credit.
Note: Nonresident citizens are taxable only on income derived within the Philippines.
If the taxpayer has stayed more than 180 days in the Philippines, he is regarded as
doing business. The computation of his net income tax payable in the Philippines will
be the same as in number 2 under the assumption that his country is granting the
same privilege of reciprocity to nonresident Filipino doing business in that foreign
country.
Note: In computing the income tax, a fractional part of a peso less than P0.50 shall be
disregarded. If the fractional part is P0.50 or more, its shall be rounded up to P1.00 (R.A. 590).
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 80
Chapter 11: Income Tax of Individuals