INCOME TAXATION

CH 4
TAX SCHEMES
• FINAL TAX (FT)
Passive Income: (Not Active Income)
1. Interest Income
2. Dividend Income from Domestic Corporation
3. Royalties
• CAPITAL GAINS TAX (CGT)
Sale of Capital Assets: (Not Ordinary Assets)
• REGULAR INCOME TAX (RT)
1. Active Income
2. Other Income:
2.1 Gains from dealings of property not subject to CGT (Ordinary Assets)
2. 2 Other Passive Income not subject to FT
ACCOUNTING PERIOD
Calendar Year – Starts from January 31 and Ends on December 31
Shall be used by:
1. Individual taxpayer
2. Taxpayer who has no accounting period
3. Taxpayer not keeping books
4. Taxpayer has accounting period other than a fiscal year (accounting
period shorter or longer than 12 mos.)

Fiscal Year - 12 month period not ending on December 31

DEADLINE OF FILING: 15th day of the 4th month after the end of taxable Year.
Ex: Calendar year (Dec.31, 2020) Fiscal Year (June 30, 2020)
Deadline: April 15, 2021 October 15, 2021
ACCOUNTING METHODS
Accrual basis – Income recognized when earned.
Sale of Services Sale of Goods
Cash sale – earned 500 500
Receivable – earned 300 300
Advances – not earned 200 0
Gross Income 1,000 800
Cash basis – Income recognized when collected
Sale of Services Sale of Goods
Cash sale – earned 500 500
Advances – not earned 200 200
Gross Income 700 700
ACCTG METHODS: INSTALLMENT METHOD
Gross Income is reported in proportion to collection. Available to:
1. Dealers of personal property.
2. Dealers of real properties, initial payment does not exceed 25% of selling price
3. Non-dealers, S.P. exceed P1,000; initial payment does not exceed P25% of S.P.
Initial payment – total payment made during the taxable year.
Selling Prince: Cash Received/ Receivable xxx
FV property Received xxx
Mortgage assumed by buyer xxx
Selling Price xxx
Contract price: Amount Receivable + FV of property Received
Gross Income: Initial Payment/Contract Price x Gross Profit
ACCTG METHODS: Deferred, % of Completion
Deferred payment method:
Down payment xx
PV or DV of future payment xx
Total S.P. xx
Tax Basis (Cost) ( xx)
Gross Income xx
Percentage of Completion
Contract Price xx
Percentage of Completion %
Revenue xx
Period expenses ( xx)
Gross Income xx
ACCTG METHODS: Crop year
Agricultural or Farming: Cash or Accrual Basis

Crop Year Basis:

Proceeds from harvest xx
Cropping Expenses related to crop:
incurred last year (xx)
incurred this year (xx)
Gross income from farming xx
MODE OF FILING INCOME TAX RETURNS
1. Manual Filing System
2. e-BIR forms – electronic forms.
3. e-FPS – electronic Filing and Payment System.

Payment: Upon filing.

Surcharge:
a. 25 % - Failure to file deficiency on time (voluntary filing)
b. 50% - willful neglect to file (filing due to BIR audit).
Interest: 12% per annum; actual days over 365 days.
Compromise penalty