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Introduction to Regular Income Tax

Theories
1. The general rule in income taxation is
a. Final income taxation c. fringe benefit taxation
b. Capital gains taxation d. regular income taxation
2. Active income is subject to
a. Final tax c. regular tax
b. Capital gains tax d. any of these
3. The net amount of regular income subject to regular tax is called
a. Gross income c. net income
b. Compensation income d. taxable income
4. Deductions are allowed to
a. Employed taxpayers
b. Individual taxpayers only
c. Corporate taxpayer only
d. Taxpayers engaged in business
5. Personal exemptions are allowed to
a. Employed taxpayers
b. Individual taxpayers only
c. Corporate taxpayer only
d. Taxpayers engaged in business
6. Which is not true with the creditable withholding tax?
a. Advances to the annual tax due
b. No need to pay further taxes
c. Need to file annual income tax return
d. Applicable to items of regular income
7. Which of the following corporate taxpayers is not subject to tax on taxable income?
a. Domestic corporation
b. Business partnership
c. Resident foreign corporation
d. Non-resident foreign corporation
8. Which interest income will not be included in the income tax return?
a. Interest income from lending
b. Interest income from notes
c. Interest income from bank deposits
d. Interest income from employees
9. Which is not considered an operating income?
a. Fees from the rendering of service
b. Interest income from advances to employees
c. Sale of crap
d. Consignment commission income by a retail store
10. Which is a non-operating income?
a. Sale of goods by a retail store
b. Gate receipts of cockpits
c. Gate receipts of cinemas
d. Gain on sale of office building
11. Which is not part of compensation income?
a. Basic pay of rank and file employees
b. Basic pay of managerial or supervisory employees
c. Fringe benefits of rank and file employees
d. Fringe benefits of managerial and supervisory employees
12. Who cannot claim deductions?
a. Employed taxpayers
b. Self-employed taxpayers in business
c. Self-employed professional taxpayers
d. B and C
13. Which of these taxpayers is required to file an income tax return?
a. An employee covered by the substituted filing system
b. A resident citizen who derives his entire income from sources outside the Philippines
c. A taxpayer deriving purely passive income subject to file tax
d. A special alien with respect to his compensation income
14. The taxable income of a pure compensation income earner is the
a. Net income from business less personal exemption
b. Taxable compensation income
c. Net income from business
d. Taxable compensation income plus net income from business
15. The taxable income of a mixed income earner is the
a. Net income from business less personal exemption
b. Taxable compensation income
c. Net income from business
d. Taxable compensation income plus net income from business
16. Which is incorrect in the determination of the taxable income of individual taxpayers?
a. A negative compensation income is deducted against net income from business
b. A net operating loss is deductible against taxable compensation income
c. The taxable compensation income is added to the net income from business
d. Personal exemption is deducted against compensation income

Problems
1. Mrs. Claveria had a gross taxable income of 400,000.She earned an additional 2,000 by
investing her money in time deposits plus 3,000 interest income from lending money to
a friend. Compute her taxable income.

2. Ms Sanchez had a business net income of 300,000. She also earned 5,000 commission from
selling cellular cards and 12,000 dividends from a domestic corporation. Compute her taxable
income.

3. Mr. Bangul earned a total gross receipts of 800,000 and paid 300,000 in expenses in his
accounting practice. During the same year, he also earned a total of 60,000 net gain from the
sale of domestic stocks directly to a buyer. He also disposed a vacant lot at a net gain of
140,000. What is the taxable income of Mr. Bangul?

4. Mr. Monreal earned a gross compensation income of 200,000 and gross business income of
500,000 before expenses of 200,000. He also earned book royalties of 10,000 and interest
income from client’s promissory notes. Mr. Monreal has a personal expenses of 170,000 during
the year. Compute for the taxable compensation income.

5. What is Monreal’s net income from business?

6. What is Monreal’s taxable income?

7. Mr. Pamplona earned a compensation income of 120,000 and net income from business of
300,000. He also earned 8,000 prizes from a dancing competition and 45,000 royalties from his
musical compositions. Compute the taxable income.

8. In 2015, Ms. Balayan earned 450,000 gross compensation income but incurred 120,000 net loss
in her business. What is her taxable income assuming she had a personal exemption of 100,000?

9. Mr. Gudini, with a 75,000 personal exemption, had the following data in 2018:

Philippines Abroad

Gross income from sales 4,000,000 6,000,000

Interest income on deposits 40,000 80,000

Less:deductions 2,000,000 3,600,000

Compute the taxable income if Mr. Gudini was a resident citizen

10. In the immediately preceding problem, compute the taxable income if he was a non-resident
citizen
11. Cavite, inc., had the following income in 2015:

Philippines Abroad

Rent income 10,000,000 12,000,000

Dividend, domestic 50,000 -

Royalties 80,000 200,000

Business expense 8,700,000 9,800,000

Compute the taxable income if Cavite Inc was a domestic corporation

12. Compute the income tax due in the immediately preceding problem

13. Compute the taxable income assuming Cavite inc was a resident foreign corporation

14. Compute the income tax due in the immediately preceding problem

15. Compute the tax due if Cavite Inc was a non-resident foreign corporation. Assuming that the tax
sparing rule is not applicable to Cavite

16. Mr. Talipao derived the following income

Business income 200,000


Compensation income 300,000
Interest income from 5/6 lending 100,000
Interest income from bank deposits 20,000
Royalty income 100,000
Capital gain on sale of personal car 20,000
Capital gain on the sale of stocks directly to buyer 40,000
Ordinary gain on sale of old office furniture 10,000
Dividend income 50,000

Compute the total passive income subject to final tax

17. Compute the total income subject to regular tax

18. Compute the capital gain subject to capital gains tax