INCOME FROM BUSINESS, TRADE OR PROFESSION
EXAMPLES OF BUSINESS, TRADE OR PROFESSION
DEFINITION
The income from any economic
activity carried on for earning profits
or income from an occupa-
tion requiring purely intellectual
skill or manual skill.
The Taxpayer in Business, Trade or Profession is entitled to
Under Section 30 (f) of the National Revenue Regulations APPLICATION OF RECOGNITION OF INCOME FROM BUSINESS, TRADE OR LEASING BUSINESS IS CONSIDERED AS SERVICES
Code, Business league chamber of commerce, or board of
trade, not organized for profit and no part of the net income
of which inures to the benefit of any private stock-holder or
individual, are EXEMPTED from tax on Corporations
FOR TAXATION PURPOSES, TO DETERMINE IF IT IS INCOME IS PRESENCE OF EMPLOYER-EMPLOYEE RELATIONSHIP
Compensation income from trade
FROM BUSINESS, TRADE OR PROFESSION, DETERMINE FIRST Rents
Annuities (e.g. life insurance) not arising
from employer-employee relationship
THE FOUR FOLD TEST Pension not arising from employer-employee
1. Selection & Engagement of employees relationship
2. Power of Control and Supervision
Partner’s distributive share from net income of
3. Payment of wages ABSENCE OF EMPLOYER-EMPLOYEE RELATIONSHIP general professional partnership
4. Power of dismissal
What if a taxpayer is a Mixed Income Earner, wherein he earns
income from business, trade or profession and compensation
RECOGNITION OF INCOME FROM BUSINESS, TRADE OR income, how will he be taxed?
PROFESSION IS EITHER: Mixed Income Earners may avail the 8% option wherein the Compensation
income will be subjected first to Normal Tax. Then, the income from the
CASH METHOD ACCRUAL BASIS Business, Trade or Profession shall be subject to 8% tax without deducting
the P250,000.00 exemption. If the Mixed Income Earner does not avail the
8% option, the sum total of the compensation income and income from
There is recognition of There is recognition of business, trade or profession shall be subject to normal tax.
income once it is collected, income once it is earned,
whether earned or not. whether collected or not. What if a taxpayer earning income purely from
the business, trade or profession?
A purely self-employed taxpayer (one whose income is earned from BTP and his Gross
Sales/Gross Receipts do not exceed P250k) can choose whether his income shall be
PROFESSION ON THE 3 TYPES OF ENTERPRISES General Rule: Security Deposits made by the lessee
are not recognized as income on the part of the lessor
subject to normal tax or to the so called "8% option.
He can avail such by subtracting the P250,000.00 from the Gross Sales and taxing the
May either choose between
difference by 8%.
CASH METHOD ACCRUAL BASIS because it is refundable. If 8% option is availed, he shall no longer pay normal tax and other percentage taxes.
If the 8% option is not availed, he shall pay normal tax and other percentage
Only Accrual Method
Exception: If there is a FORFEITURE CLAUSE in
the contract of lease, wherein, the lessee will forfeit
taxes.
Note: If the Purely Self-employed taxpayer or Mixed Income Taxpayer wants to avail of the 8% option,
Only Accrual Method
the amount in favor of the lessor. Hence, there is
recognition of INCOME.
he must indicate it in his First Quarterly Income Tax Return. Otherwise, the taxpayer is deemed to have
chosen the Normal Tax option.
Want to know more about Tax Laws? Enroll at Saint Louis University, School of Law. Contact us at sol@slu.edu.ph
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