Hazel T.

Kapangyarihan 11/29/2021

BSOA 4-4 Mr. Vincent

Reflection

TAXATION FOR SELF EMPLOYED AND MIXED TAXATION FOR INDIVIDUALS

For the past weeks, our prof discussed taxation for self-employed individuals and mixed taxation
for individuals, and allowable deduction and direct taxes. A self-employed person is an independent
contractor or a sole proprietor who reports self-employment income. Self-employed people work for
themselves at a variety of trades, professions, and occupations rather than working for an employer.
They may register as a single proprietor or entrepreneur or as professionals exercising or practicing their
profession. Freelancers or those who can earn online are included in this category of you can choose 2
methods on how to compute their tax payable, 1st is 8% rule; and income tax based on graduated table,
where a taxpayer has two options to use. It can be optional standard deduction (OSD) method, or
Itemized deduction method.

Self-employed individual whose gross sales plus non-operating income do not exceed
PHP3,000,000.00 has an option to use the 8% rule. 8% Income Tax on Gross Sales or Gross Receipts in
Excess of P250,000 in Lieu of the Graduated Income Tax Rates and the Percentage Tax. To compute for
tax payable using this method, get the sum of gross sales and non-operating income, if there is any, and
subtract it to PHP250,000.00. Once you get the difference, multiply it to 8%. The product is your tax
payable.

The use of a graded table is an option for PHP3,000,000.00. There are two ways to compute this:
the OSD method and the itemized deduction method. To calculate tax payable using the OSD method,
first calculate the 40% of gross revenue, then deduct it from gross revenue to get the taxable income.
Then, using the compensation tax table, calculate the tax due. To calculate taxable income when using
the itemized deduction technique, remove cost of sales and allowed deduction from sales. Then use the
tax table to figure out how much money you owe in taxes.

Remember that there are 3 (three) steps in computing tax payable using 8% rule, first step:
Compute for the tax payable on compensation income. Second: Compute for tax payable on business
income and lastly: Get the sum of tax payable from compensation and business income to get the total
tax payable.

And for computing tax payable without using the 8% rule, there are still 3 steps to get it. First
step: only get taxable income from compensation, second: compute taxable income from the business
and add this to taxable income from compensation to get the total taxable income. And lastly: Compute
the tax due of total taxable income based on the tax table.

Does person whose employee and a business owner categorized as mixed income worker.
Similar with self-employed workers, those under this category can choose between the two methods to
compute for their tax payable, namely: 8% rule; and without using the 8% income tax.
 Allowable deductions must be expenses that directly relates to your business. They must be
ordinary expenses that are necessary to the daily conduct of your business or profession. Personal
expenses or any expense which does not contribute to the income of your business are not allowed. A
direct tax is a tax that a person or organization pays directly to the entity that imposed it. An individual
taxpayer, for example, pays direct taxes to the government for various purposes, including income tax,
real property tax, personal property tax, or taxes on assets. Example of allowable deductions are: bad
debts; charitable contributions; depletion; depreciation; fringe benefits; office supplies; salaries and
allowance expense; royalties; SSS and other contribution; tolling fees; taxes and licenses; etc.