INCOME AND BUSINESS TAXATION

TAXATION –is the power to tax inhabitants in a sovereign state to OPTIONAL STANDARD DEDUCTIONS
raise money for public use. -represent 40% of gross income.
- The Bureau of Internal Revenue (BIR) administers the INDIVIDUAL CORPORATION
collection of the tax. Gross Revenue xxx Gross Revenue xxx
TAX – are the means of the government to raise funding for its Less: 40% OSD ( xxx) Less: Cost of Sales (xxx)
various projects. Net Taxable Income xxx Gross Income xxx
INCOME TAX – defined as the tax imposed on the income earned by Less: 40% OSD (xxx)
the individuals though compensation. Net Taxable Income xxx
BUSINESS TAX – derived from income generated from being
engaged in business activities. It can be classified as Percentage Tax *NOTE: INDIVIDUAL is not allowed to deduct its cost of sales unlike
or Value Added Tax. a corporation.
GROSS REVENUE – means income from whatever sources. As a
GENERAL RULE, ALL INCOME IS TAXABLE including illegally obtained PERSONAL AND ADDITIONAL EXEMPTIONS
income. -the law granted individual a personal and additional exemption
1. Compensation Income – income derived from rendering - all individual taxpayer has a P50,000 PERSONAL EXEMPTION.
services. (Salary allowance, Bonus ) - in addition, they could also claim up to 4 ADDITIONAL EXEMPTION
2. Gross Income from business – means income in the for dependent for P25,000 each. Or total of P100,000.
conduct of trade or business. The REQUISITES for additional exemptions are as follows:
3. Professional income – represents fees paid to 1. Taxpayers child (legitimate. Illegitimate, adopted)
professionals such as lawyers, CPA’s, Doctors etc. 2. Chiefly depends support from and living with the taxpayer.
4. Other income – consist of interest, gain from sale of 3. Not married and not employed
assets, royalties, dividends, prize and winnings. 4. Not more than 21 years old ( if the child is PWD, this
requisite doesn’t apply.
GENERAL EXCEPTION Note:
Note: some income is not taxable. 1. As a rule, parents and siblings sibling are not qualified as
1. Minimum wage earner dependent.
2. 13th month bonus and other benefits not exceeding 82,000 2. Who has the right to claim additional exemption? The
3. Benefits from SSS and GSIS and winnings from PCSO. husband has the right to claim the exemption. BUT, if the
husband has no earnings, then wife is the proper claimant
INCOME TAXATION
- Simply means tax on income. Individual tax rate
- tax on a person’s income, profit arising from property, practice of Over But not Basic tax Rate In excess
profession, conduct of trade or business. over of
- no tax will be collected from people with no source of revenue. 0 10,000 0 5% 0
- computed quarterly and annually both for business and individuals. 10,000 30,000 500 10% 10,000
- Income tax are computed BASED ON NET TAXABLE INCOME. 30,000 70,000 2,500 15% 30,000
70,000 140,000 8,500 20% 70,000
GROSS REVENUE P XXXXX 140,000 250,000 22,500 25% 140,000
DEDUCTIONS: XXXXX
250,000 500,000 50,000 30% 250,000
NET TAXABLE INCOME P XXXXX
500,000 above 125,000 32% 500,000
DEDUCTIONS
FORMULA
-represents expenses and exemptions allowed by the tax law.
INDIVIDUAL CORPORATION
- helps in reducing the income tax of the taxpayer.
- As a RULE, deduction should be in connection with the taxpayer’s Gross Revenue XXX Gross Revenue XXX
conduct of business and professions. Less: Itemized or Optional Less: Cost of Sales (XXX)
Standard Deductions (XXX) Gross Income XXX
TAXPAYER MAY USE “OPTIONAL STANDARD DEDUCTION” OR Total XXX Less: Itemized or Optional
“ITEMIZED DEDUCTION” but cannot use both. Less: Personal and Standard Deductions (XXX)
Additional Exemption (XXX) NET TAXABLE INCOME XXX
ITEMIZED DEDUCTION NET TAXABLE INCOME XXX
1. General and business expenses NET TAXABLE INCOME XXX
2. Interest BASIC TAX XXX LESS: 30% corporate tax (XXX)
3. Taxes ADD: % IN EXCESS OF XXX INCOME TAX DUE XXX
4. Bad Debts INCOME TAX DUE XXX
5. Depreciation
6. Charitable Contributions

PREPARED BY : JONAS P. ORDANIEL

FOR INTERNAL USE ONLY