John Manalili - establish a trust in Dec.

2017 for the benefit of his son

Jake - son, 15 years old
2 income-producing properties transferred to the trust
1. vacant lot leased for 6,000,000 annually, gross of withholding tax of 5%
2. office bldg. with a monthly rental income of 250,000, gross of withholding tax of 5%

Atty. J de Castro - trustee

2018 trust's cost of leasing the properties - 1,560,000
ordinary trust expenses - 820,000
income distributed to beneficiary - 2,144,000

Required
1. income tax payable by the trust in 2018
2. income tax due from the beneficiary in 2018 if he, through his legal representative, chooses to be taxed under the 8% regim

1. Income tax payable by trust

Lease income, vacant lot 6,000,000

Rent income, office bldg. (250,000 x12) 3,000,000
Total revenues 9,000,000
Cost of services -1,560,000
Gross income 7,440,000
Less: Deductions
Business expenses 820,000
Income distributed to beneficiaries 2,144,000 2,964,000
Net taxable income 4,476,000

Tax on 2,000,000 490,000

Tax on 2,476,000 x 32% 792,320
1,282,320
Less: CWT withheld
CWT - Lease income (6,000,000 x 5%) 300,000
CWT - Rental Income (3,000,000 x 5%) 150,000
Tax payable 832,320

2. Income tax due on beneficiary - 2018

Gross sales 2,144,000
Non-operating income 0
Total income 2,144,000
Less amount allowed as deduction -250,000
Taxable income 1,894,000
Tax rate x 8%
Tax due 151,520
be taxed under the 8% regime
Illustration 11.3

12/1/2017
Mr. J. Cruz created Trust I for his son, Albert
Atty. J. Castro - trustee
12/26/2017
J. Cruz created Trust II for his son, Albert
Atty. J. Lallave - trustee

Trust I (Trustee - Atty. J. de Castro

Gross sales 1,300,000
Cost of Sales -300,000
Gross Income 1,000,000
Operating expenses -550,000
Net income 450,000
Trust II (Trustee - Atty. J Lallave)
Gross sales 1,650,000
Cost of Sales -560,000
Gross income 1,090,000
Operating expenses -540,000
Net income 550,000

1. Tax payable by trustees under graduated income tax rate regime

Taxable net income of Trust I 1,300,000

Taxable net income of Trust II 1,650,000
Consolidated taxable net income 2,950,000
Cost of sales -860,000
Gross income 2,090,000
Operating expenses 1,090,000
Taxable net income 1,000,000

Tax on 800,000 130,000

Tax on 200,000 x 30% 60,000
Tax due on 1,000,000 190,000

Tax payable by de Castro (Trust I)

450,000/1,000,000 X 190,000 85,500
Tax payable by Lallave (Trust II)
550,000/1,000,000 x 190,000 104,500

2. tax due using 8%

Gross sales (Trust I) 1,300,000
Gross sales (Trust II) 1,650,000
Total gross sales 2,950,000
Less: Allowed deductions -250,000
Consolidated taxable net income 2,700,000
Tax rate x 8%
Tax due 216,000

a. tax payable (trust I)

1300000/2950000 X 216,000 95,186
B. Tax payable (trust II)
1,650,000/2,950,000 x 216,000 120,814
J. Cruz - practicing CPA
Tax due 104,860
Less: Tax credits
Taxes withheld on professional income 20,000
Tax due and payable 84,860
a. Declared estimated income tax
84,860
b. dates and amounts of estimated income tax payable on each installment
1st installment (on or before May 15, 2019) 21,215
2nd installment (August 15,2019) 21,215
3rd installment (November 15,2019) 21,215
4th installment (on or before April 15,2020) 21,215
Total 84,860
Monthly fee = 142,500 (net of 5% CWT)
Salary for teaching part-time = 291,537 (net of CWT of 53,992)
taxed under graduated tax rates
avails of the 40% OSD in lieu of allowable expenses

Required: quarterly income taxes due in 2018 and the income tax payable on the final return
1st quarter
Gross consultancy income (150,000 x 3) 450,000
Less: Expenses (450,000 x 40%) -180,000
Taxable net income 270,000

Tax on 250,000 0
Tax on 20,000 x 20% 4,000
Tax due 4,000
Less: CWT (450,000 X 5%) -22,500
Tax payable 0

2nd quarter
Gross consultancy income (150,000 x 6) 900,000
Less: Expenses 360,000
Tax due 540,000

Tax on 400,000 30,000

Tax on 140,000 x 25% 35,000
Tax due 65,000
Less:
CWT (900,000 X 5%) 45,000
Tax paid on the previous quarter 0 45,000
Tax payable 20,000

3rd quarter
Gross income (150,000 x 9) 1,350,000
Less: Expense -540,000
Taxable income 810,000
Tax due on 800,000 130,000
Tax on 10,000 x 30% 3,000
Total tax due 133,000
Less
CWT (1,350,000 X 5%) 67,500
Tax paid on previous quarter 20,000 87,500
Tax payable 45,500

4th quarter (Annual Income)

Compensation Income 345,529
Add: Business income
 Gross consultancy income 1,800,000
Less: Expenses -720,000 1,080,000
Taxable net income 1,425,529

Tax on 800,000 130,000

Tax on 625,529 x 30% 187,659
Total Tax Due 317,659
Less:
Tax paid in previous quarters (20,000 + 45,500) 65,500
CWT (1,800,000 x 5%) 90,000
CWT on salary 53,992 209,492
Tax payable (overpayment) 108,167
1. Quarterly income tax due
1st quarter
Sales 500,000
Cost of sales -260,000
Gross income 240,000
Less: Deductions
Expenses -120,000
Net income 120,000
Tax rate x 30%
Tax due & payable 36,000
Note: Royalty income is subject to final withholding tax of 20%. Hence, it was not included in gross income.
2nd quarter
Sales, 1st quarter 500,000
Sales, 2nd quarter 450,000
Total sales 950,000
Cost of sales -480,000
Gross income 470,000
Expenses -220,000
Net taxable income 250,000
Tax rate x 30%
Tax due and payable 75,000
Tax paid in previous quarter -36,000
Tax due and payable 39,000

3rd quarter
Sales, 1st quarter 500,000
Sales, 2nd quarter 450,000
Sales, 3rd quarter 700,000
Total sales 1,650,000
Cost of sales -870,000
Gross profit 780,000
Add: Rent income 180,000
Gross income 960,000
Less: Deductions
1st quarter 120,000
2nd quarter 100,000
3rd quarter 150,000 370,000
Taxable net income 590,000
Tax rate x 30%
Tax due and payable 177,000
Less: tax credits
Income tax paid, 1st quarter 36,000
Income tax paid, 2nd quarter 39,000
Withholding tax 9,000 -84,000
Tax payable, 3rd quarter 93,000
4th quarter
Sales, 1st quarter 500,000
Sales, 2nd quarter 450,000
Sales, 3rd quarter 700,000
Sales, 4th quarter 600,000 2,250,000
Cost of sales -1,180,000
Gross income 1,070,000
Add: Rent income
3rd quarter 180,000
4th quarter 190,000 370,000
Total Income 1,440,000
Less: Deductions
Expenses 530,000
Taxable net income 910,000
Tax rate x 30%
Tax due 273,000
Less: Tax Credits
Income tax paid on 1st 36,000
Income tax paid on 2nd 39,000
Income tax paid on 3rd 93,000
Withholding tax on RI (3RD) 9,000
Withholding tax on RI (4TH) 9,500 186,500
Tax due and payable 86,500
1. Quarterly income tax payable

1st quarter
Sales 400,000
Cost of sales -180,000
Gross sales 220,000
Add: Gross income
Rent income 144,000
Gross income 364,000
Less: Deductions
Expenses 100,000
Net taxable income 264,000
Tax Rate x 30%
Tax due 79,200
Less: Tax Credits
Excess quarterly payments 27,500
Withholding tax 7,200
Tax payable 44,500

2nd quarter
Sales, 1st quarter 400,000
Sales, 2nd quarter 600,000
Total sales 1,000,000
Cost of sales -500,000
Gross sales 500,000
Add: Rent income 144,000
Gross income 644,000
Less: Expenses 250,000
Net taxable income 394,000
Tax rate x 30%
Tax due 118,200
Less: Tax credits
Withholding tax 7,200
Excess quarterly income payments 27,500
Tax paid in previous quarter 44,500 79,200
Tax payable 39,000

3rd quarter
Sales, 1st Q 400,000
Sales, 2nd Q 600,000
Sales, 3rd Q 500,000 1,500,000
Less: Cost of sales 740,000
Gross sales 760,000
Add: other income
Rent income 144,000
Total income 904,000
Less: Deductions
Expenses 370,000
Taxable net income 534,000
Tax rate x 30%
Tax due 160,200
Less: tax credits
Withholding tax 7,200
Excess withholding tax for previous year 27,500
Tax paid in first quarter 44,500
Tax paid in second quarter 39,000 118,200
Tax payable 42,000

Final return
Sales (Annual) 2,200,000
Less: cost of sales 1,120,000
Gross sales 1,080,000
Add: Other income
Rent income 144,000
Rent income 4th quarter 50,000 194,000
Gross income 1,274,000
Less: Deductions
Expenses 470,000
Net taxable income 804,000
Tax rate x 30%
Tax due 241,200
Less: Tax credits
Excess tax paid 27,500
Withholding tax on RI (1st Q) 7,200
Withholding tax on RI (4th Q) 2,500
Tax paid in 1st quarter 44,500
Tax paid in 2nd quarter 39,000
Tax paid in 3rd quarter 42,000 162,700
Tax payable on 4th quarter 78,500
Rental income (76,300 x 3) 228,900
Less: Expenses (228,900 x 40%) 91,560
Net taxable income 137,340
Tax due = none

2. Rental income 457,800

Less: Expenses -183,120
Net taxable income 274,680

Tax on 250,000 0
Tax on 24,680 x 20% 4,936
Tax due 4,936
Less: tax credits -22,890
Tax payable 0

3. Rental income 686,700

Less: Expenses -274,680
Net taxable income 412,020
Tax on 400,000 30,000
Tax on 12,020 x 25% 3,005
Tax due 33,005
Less: tax credits 34,335
Tax payable 0

4. Rental income 915,600

Less: Expenses 366,240
Net taxable income 549,360
Tax on 400,000 30,000
Tax on 149,360 x 25% 37,340
Tax due 67,340
Less: Tax credits 45,780
Tax payable 21,560

5. Sales 7,350,000
Cost of sales: -3,000,000
Gross income 4,350,000
Deductions -2,500,000
Net taxable income 1,850,000
Tax rate x 30%
Tax due 555,000
Less: tax credits
Withheld tax 350,000
Excess tax credits 5,000 355,000
Tax payable 95,000
6. Sales 18,000,000
Cost of sales -8,000,000
Gross income 10,000,000
Deductions 6,000,000
Net taxable income 4,000,000
Tax rate x 30%
Tax due 1,200,000
Less: tax credits
Withheld tax 900,000
Tax paid in 1st Q 95,000
Excess tax 5,000 1,000,000
Tax payable 200,000

7. Sales 29,000,000
Cost of sales -12,800,000
Gross income 16,200,000
Deductions 10,500,000
Net tacable income 5,700,000
Tax rate x 30%
Tax due 1,710,000
Less: tax credits
Tax withheld 1,450,000
Excess tax 5,000
Tax pais in 1st quarte 95,000
Tax paid in 2nd quarter 200,000 1,750,000
Tax payable -40,000

8. Sales 44,000,000
Cost of sales -19,300,000
Gross income 24,700,000
Less: Deductions -12,000,000
Net taxable income 12,700,000
Tax rate x 30%
Tax due 3,810,000
Less: Tax credit
Withholding tax 2,200,000
Excess tax 5,000
Tax paid in 1st quarter 95,000
Tax paid in 2nd quarter 200,000 2,500,000
Tax payable 1,310,000
1. A
2. A
3. D
4. Income of estate 6,500,000
Expenses 3,000,000
Net taxable income 3,500,000

Tax on 2,000,000 490,000

Tax on 1,500,000 x 32% 480,000
Tax due 970,000
Less: tax credits
Withholding tax -325,000
Tax payable 645,000 C

5. Income of the estate 6,500,000

Less: Deductions
Expenses 3,000,000
Income distributed 350,000 3,350,000
Taxable net income 3,150,000

Tax on 2,000,000 490,000

Tax on 1,150,000 x 32% 368,000
Tax due 858,000
Less: Tax Credits
Withholding tax 325,000
Tax payable 533,000 D

or
Income 6,500,000
Less: Deductions
Expenses 3,000,000
Income distributed 297,500 3,297,500
Taxable net income 3,202,500

Tax on 2,000,000 490,000

Tax on 1,202,500 x 32% 384,800
Tax due 874,800
Less: Tax credits
Withholding tax on income 325,000
Tax payable 549,800

6. D
7. B
8. C
9. Trust I 600,000
 Trust II 120,000
Trust III 80,000
Total gross income 800,000
Less: Expenses 100,000
Total taxable income 700,000

Tax on 400,000 30,000

Tax on 300,000 x 25% 75,000
Total tax due 105,000

Trust 1 575,000 X 105,000 86,250

700,000
Trust 2 20,000 X 105,000 3,000
700,000
Income of the estate 6,500,000
Less: Deductions
Expenses 3,000,000
Income distributed 350,000 3,350,000
Taxable net income 3,150,000

Tax on 2,000,000 490,000

Tax on 1,150,000 x 32% 368,000
Tax due 858,000
Less: Tax Credits
Withholding tax 325,000
Tax payable 533,000
 Gross Income Expenses Net income
Trust 1 ₱ 600,000.00 ₱ 25,000.00 ₱ 575,000.00
Trust 2 120,000.00 15,000.00 105,000.00
Trust 3 80,000.00 60,000.00 20,000.00
₱ 800,000.00 ₱ 100,000.00 ₱ 700,000.00