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    77 views20 pages

    Chapter 14. Regular Income Taxation Individuals

    Uploaded by

    Isabel Malicdan

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    © All Rights Reserved
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    won, Chapter 13-C - Optional Standard Deduction 4, 5. Mr. Calabarzon reported the following data in 2020: /. Compute the taxable income of Mr. Calabarzon. Chapter 14 — Regular Income Taxation: Individuals CHAPTER 14 REGULAR INCOME TAXATION: INDIVIDUALS Tn the second-quarter of 2019, Mr. Marano reported total gross income 72,000,000 after P1,500,000 direct cost of services. If Mr. Mariano dai itemized deduction in the first quarter, what is the amount of claimable OSD in second quarter if he wishesto change tothe OSD? a PO © P800,000 '. P600,000 «.P1,400,000 A private educational institution subject to 2.10% preferential. corporate “All tax rules relevant to income taxation of individuals are alread; reported the following in the first quarter of fg nthe rst quarter af 2020 previous chapters. This chapter aims to provide an Integration of resto veces prs. 900 Pi whith are spectly relevant onda payers inode tsimulate a Less: Tuition discounts and remissions 400,000 Closer to reality depiction of individual income taxation in practice. Direct eotat sevens fooana Gross income from canteen and bookstores ‘600,000 ‘After this chapter, readers are expected to demonstrate mastery on the following: : 1. Determination of tax under the regular income tax option Campeatbowahie 0: f de nchawm ain OD. 2. Determination fac ander the Bincometac option b. P2920,000 Tenant 3. Preparation of quarterly and consolidated or adjustment return 4, Rules relevant to taxable estates and trusts 5._Rules on installment payment of the regular tax Sales P Cost of sates re INDIVIDUAL INCOME TAXATION Gainon sae of equipment 60,000 Interest income from bank deposits 40,000 ‘The Regular Income Tax for Individuals . Deductible expenses. 300,000 ‘The income tax of individuals is determined through the following tax table: Non-deduictile expenses 200,000, Answer the following questions: Year 2018 to Year 2022 Compute the optional standard deduction. Taxable income fax sie a. 440,000, .P400,000, P250,000 and below None (0%) — wb. P4240 .P160,000 Above 250,000 to P400,000 ___20%4of exces above P250000 ‘Above P400,000 to P800,000 | P30,000 + 25% of excess over PA00,000 Above P800,000 to P2,000,000 | P130,000 + 30% of excess over P800,000 0+ 3299 of excess over P2,000,000, 000 + 38% of excess over F000 000 | a 700,000 ©-P340,000 ». P660,000 + .P300,000, Assuming that Cfabarzon sa corporat taxpayer, corapute the optional tan dedvetion, 4 ea eeeteer ore cee Ceca Year 2023 Onwards a. Pa40,000 <.P184000 ‘Taxable income, ‘b. P424,000 d.P160,000 P250,000 and below ‘None (0%) ‘Above P2S0,000 to P400,000_| 1546 of excessabove P250,000 | ‘Above P400,000 to P800,000 | P22,500 + 20% of excess over P400,000 } ‘Above P8O0,000 to P2,000,000 | P102,500 + 25% of excess over ?800,000 ; Above P2,000,000 to PB,000,000_ P402,500 + 30% of excess over P2,000,000, : j Above P,000,000_ “[P2205.500-+ 359% of excess over P,000,000 | ate 379 S78 Chapter 14 — Regular Income Taxation: Individuals, Repeal of the personal exemption ‘The TRAIN law repealed the concept of personal exemption in order to si the tax system. However, it cannot be denied that individuals incur pe expenses such as cost of living in order to survive. Theoretically, the law have to make provision for this in order not to kill the goose that lays the gol egg. In lieu of personal and cost of living expenses of individuals, the TRAIN provides for the P250,000 annual income exemption for every individual, amount is inserted in the tax table and is automatically granted for {individual subject to regular income tax. There is no more separate account personal exemptions: ‘TAXPAYERS SUBJECT TO PROGRESSIVE INCOME TAX ‘The progressive income tax for individuals covers the following: 1. Citizens: a. Resident citizen b._ Non-resident citizen 2. Aliens a. Reside b. Non-resident alien engaged in business 3. Taxable estate CLASSIFICATION OF INDIVIDUAL INCOME TAXPAYERS: For purposes of the regular tax, individual income taxpayers are classified as: 1. Pure compensation income earner 2, Pure business or professional income earner 3. Mixed income earner PURE COMPENSATION EARNER The compensation income of employees, except minimum wage earners is sub to withholding tax}on compensation. Every employer is mandatorily required deduct the withholfing tax from the compensation income of their employees- ‘Treatment of the withholding tax on compensation 1. Full payment ~ if the employee has no other income and the tax is corret withheld 2 Taree = th erployes heehee al nce ti is coftectly withheld 580 Chapter 14— Regular Income Taxation: Individuals Employees with no other income : ifthe employee has no other taxable income, he may avail ofthe substituted, fystem. Under this system, the withholding tex on compensation is considered gnough evidence of tax compliance of the employee, provided thatthe employer ‘withheld the correct tax. Condionsofthe Subsitted ingyen {onthe employes receved purely cmenseion income uring the year. spe cre reed the Tocome frm only one employer inthe Philpines during the table yer eae art due from the employee atthe end ofthe year equals the mount oftac wield by thee see) 5. The ‘The employer issues BIR Form No. 2316 to each employee. , stem shall imployees who do not meet the conditions ofthe substituted ing system Fan anal offal adjustment return not ater than Api 15 ofthe Flowing Year and Gaim Forin 2316 35 ax credit Consolidated or Adjustment Return Consolidated or adjustment return is needed when: . 1. Corract tax isnot withheld 2. Employee or his spouse has other income Correct tax due not withheld by employer The correct tax due of the employee will least likely to be withheld by the ‘employer in the following cases: 1. Concurrent employment 2. Successive employment during the year 3, Incurrence of error by the employer ‘An annual return needs to be filed to adjust the tax due to the correct amount of tax. This is referred to as an adjustment return, The employee shall claim Form 2316as tax creditand pay residual tax due or claim excess withheld amount as tax credit or tax refund. IMlustration 1: Concurrent employment Rhadvie Estoque is both employed in Yousee Company and in Youbee Company. He has the following income and withheld tax during the year: —Yousee_ _Youbee_ Bs50000 2.350.000 2.42500 P2000 sal ‘Taxable compensation income Withheld tax tro, (Chapter 14 — Regular Income Taxation: Individuals, Mr. Estoque's consolidated income tax shall be computed follows: income (P450,000¢P350,000) P.g00.000 vidual tax table P 130000 -mployers (P42,5004P20,000) 62.500 Income tax payable or (refundable) 267500 Mlustration 2: Successive Employment In 2020, Zeus resigned from Blue Moon Company and transferred employm Gagamba Company. The following were his income: HlueMoon Gagamba ‘Taxable compensation income P 300,000 P 400,000 ‘Tax withheld from compensation 10,000 30,000 Zeus shall file a consolidated return covering his total 2020 income from be employment and pay the residual tax as follows: ‘Taxable compensation income (P300,000 + P400,000) P_700,000 P 105,000, 285.000 Income tax due, per individual tax table lustration 3: Employer error |m 2020, Jeff's employer withheld a total of P $6,000 out of his P460,000 taxa compensation income, Since the tax withheld is erroneous, Jeff sh residual tax due or claim refund or tax ‘Taxable compensation income Income tax due, per}ndividual tax table Less: Tax withheld fy employers Income tax payablebr (refundable) 460.000 P 45,000 (88.000) (_11.000) Jeff shall use BIR Form 1700 as adjustment return, Employees has other taxable income ‘ome subject to regular tax may come from: basso pct o aes 4 582 (chapter 14 — Regular Income Taxation: Individuals some, the employee is mandatorily required to corporate other income sources in his return. ‘income tax return. ifthe employee has other taxal anual income tax referred as a consolidat consolidated income tax return may either be: Tpit Form 1700 ithe employee isnot engaged in bus 2, BIR Form 1701 for mixed income earners ~ if the employee is ‘business and or profession fession Iso engaged in ‘The withholding tax on compensation (BIR Form 2316) given by the employer hall be claimed as tax credit. {Mlustration ~ With other casual it ived the following compensation and benefits P 987,000 Gross compensation income poe Bxemptbenefits ey Fringe benefits (pald personal vacation) Mandatory deduction for SS, Pilealth HOME ‘Total withholding tax deducted under Form 2316 He also derived the following other income: jwithholdingtax — P_— 72,000 of 20% final tax 16,000 ars) 124000 212.000 ‘Mr. Milo shall file BIR Form 1700 to inciude his other income subject to regular tax: 90,000 from bonds (P72,000 / 809%) P farts collection (P124,000 x 50% - Iong term) _62,000 andthe nero 1 ings bent fan euive- a manager employ apa neater final tax. These are excluded in gross income subject to regular tax. The Vere etch ‘The tax credits shall be: Withholding tax on compensation (Form 2376) Wihholding te onthe teres (PION 20% under Form 2207) P 145750 18,000 583 Chapter 14 Regular Income Taxation: Individuals ‘Mr. Milo’s taxable income shall be computed as: Gross compensation Income 987,000 Less: Mandatory deductions P 40,000 Exempt benefits 94,000 __124,000 ‘Taxable compensation income P 863,000, ‘Add: Other inccme subject to regular tax 152,000 ‘Taxable income 2015.00 income tax still due shall be computed as: P 194,500 P 145,750 procedures of employees engaged in business or practice of ‘profession will be discussed under mixed income earners. i ‘PURE BUSINESS AND/OR PROFESSIONAL INCOME EARNER i Individual taxpayers engaged in business or practice of profession shall quarterly income tax returns (BIR Form 1701Q) and an annual tax return: 1 Quarter ITR- 17019 ‘24 Quarter ITR- 1701Q____Augi ‘38 Quarter ITR-1701Q Nov ‘Annual ITR= 17014 ‘The taxable income from business or profession may be computed using: 1, Itemized deductions 2. Optional standarg deduction Mlustration 1 ~ fs deduction ‘Mrs, Macipag, a self dmployed taxpayer, had the following quarterly income detalls: Jan.zMarch April-June _luly-Sept_ _Oct_=Dec._ Gross receipts P 500.000 P 20.000 P 550000 P 580,000 = Busfhess expenses ~ Personal expenses E—azz00 p—_a5.000 ‘Chapter 14 — Regular Income Taxation: Individuals Jan=March April-June. july=Sent Oct-Dec | Withholding tax P4000 P 10000 P 15,000 P 14,000 His quarterly and annual taxable income and tax due shall be computed on his "cumulative year-to-date taxable income as follows: 1stOm 2nd Qu. 3rd _Annual TTR P 500,000 P 1,020,000 P 1,570,000 P 2,150,000 120,000 __320,00 ___s70,000 ___#40.000 F aen000 F ruoam F 1900000 F 7,310,000 Less: Deductions ‘Taxable net income P 6000 P 47,500 P 92,500 P_ 136,000 CWT thisquarter P4000 P10,000 P_ 15,000 P_— 14,000 ~ GWT prior quarters. ____o __4,000 _14,000 __29,000 Total credits _g gana 4 ansa0 sain B_2000 P_31.500 P__30,000. P_ 29.500 Ulustration 2 - Optional standard deduction Letus assume the same data in the preceding problem, except that the taxpayer opted to use the optional standard deduction |The quarterly and annual taxable income and tax due shall be computed as follows: Astor 2nd Qu. __3rd. Oe _ Annual TR P 500,000 P 1,020,000 P 1,570,000 P 2,150,000 200,000 __408,000 ___628,000 __260,000 2300.00 P_612.000 P__942,000 P 1,290,000 Gross receipts Less: OSD ~ 40% ‘Taxable net income Income tax due P 10000 P 83,000 P 172,600 P 277,000 Less: Tax credits = CWT this Pp 4000? 10000 P 15,000 P_ 14,000 Total credits P4000 P 14.000 B___29,000 P__43,000 P 6000.P 65.0007 143600, P 734000 Less: Estimated t Inprior quarters Income tax still due ~ ‘9% gon “4 ap.n0 143.600 P_co00 P_63,000 P__74,600 p_a0.400 585 ro Chapter 14 — Regular Income Taxation: Individuals (Chapter 14 — Regular Income Taxation: Individuals Excess quarterly estimated tax ‘Taxable compensation income 987,000 ‘The excéss quarterly estimated tax payments over the quarterly tax due the option of the taxpayer, be carried forward to quarters of the suet taxable year or claimed through tax refund. The option must be indicated annual adjustment return. Once the option to carry-over is made, it be irrevocable for that period. Gross income P 1310000 “se Deductions —4c000 Netincome Paavo Table neome Pi.907.000 _ rs. Macipag shall file BIR Form 1701 for her consolidated income. Her annual income tax tll due shall be computed as: The option to refund ‘The option to refund may be in the form of cash or a tax credit certificate. If option to refund is selected, the excess refundable amount should not be canal) tpeome tax due P 432,100 over as tax credit to the succeeding quarters ofthe following year. "Les: Tax credit Wi taxon compensation (Form 2316) P 93750 ‘MIXED INCOME EARNER Expanded withholding tax (Farm 2207s) 43,000 ‘The compensation income of mixed income earners will be subjected to th Estimated tax payments (Form 1701Qs) 63.500 ___200,250 withholding tax on compensation by their employers. Mixed income Income tax still due 2b —za1850 THE 8% INCOME TAX OPTION return, It shall be included only in the annual consolidated return, Mixed e ced @ for indivi =the 8 Seepeyersstall a BIN Ferma L701 The TRAIN law introduced a new tax schem ual taxpayers ~ the 8% optional income tax, The option to be taxed at 8% must be indicated in the first quarter income tax return or in the first quarter percentage tax return. When Mlustration ‘made, the option shall be irrevocable for the calendar year. ‘To facilitate our discussion, let us assume the same data in the previous ‘except that Mrs. Macipag isalso employed with the following income during th Employment Jon.-March April-June. _July-Sent_ Taxablecompensation P 150,000 P 160,000 P 165,000 P ‘Withbiolding tx on compensation (Form 2316) Business Grossincome P 380,000 P 320,000 P 300,000 P 310) Itemized deductions ooo09 __130009 __120.000 Netincome 4 B-280,000 P_190,000 P—ig0.000 B Form 2307s | P4000 P 10000 P 15000 P14 Nature: 1. A bundled tox itis in ew of a. Regular income tax, determined through the income tax table b, 3% general percentage tax yng as the taxpayer remained as a non-VAT taxpayer during. the year. It will be invalidated in favor of the regular income tax once the taxpayer becomes VAT taxpayer during the year. 3. Paid quarterly and annually Scope: a. Pure business or professional income earners D. Mixed income earners Quartertytmx — / a Mrs. Macipag shall report her quarterly income from business or profession am the same quarterly income tax due as computed in the previous illustration: JncMarch ApclJune. _July-Sept_ Annual Quatterty income tax due P2000 P_31.500 P_ 30,000 Le anaes ‘The taxable income of Mrs, Macipag for the year fall he computed as: Business Tax: A Basic Overview Aside from income tax, individuals engaged in business or exercise ofa profession fre also required to pay a business tax whichis either a 3% percentage tax or a 12% value added tax (VAT), 586 " 587 te Chapter 14—Regular Income Taxation: Individuals ‘Chapter 4 ~ Regular Income Taxation: Individuals ‘Types of business tmpayers: ‘Tax obligations of individual non-VAT taxpayers: 1. Exempt businesses - not subjectto VAT or percentage tax Regular tx option 32s fncome tax option Examples: aqularcometax | Squarterly 1701s andT | 3 quarterly 1701Qs and 1 4. Businesses sling agricultural produ ‘annual 1701 annual 17014 Agricultural contract growers Percentage ta Taquareriy 15539 None . Book publishers or bookstores : ; ; registered VAT and regular income tax 2. Business specifically subject to other percentage taxes - not subject to aT texpayers pay VAT and regula but subject to percentage tax of various rates Examples 4. Common carriers by land, such as tax jeepney, bus and er for hte 1b. Operators of cockpits, cabarets, clubs, javalal or horserace track 1. Vatable businesses ~ other businesses ‘Tax basis: ‘The 8% optional income tax shall be based upon the gross sales or gross receipt of the individual taxpayer that is subject to 3% percentage tax. Other income subject to regular tax are added to the basis. inco) os For pure business or professional income earners, the use of the 6% income tax ‘would effectively deny the individual taxpayer of his P250,000 annual income ‘exemption, the same being embedded in the regular tax table. Due to this, the B% income tax shall be computed from the basis net of P250,000. they registered as VAT taxpayers . 396 general percentage tax - if their annual sales do not exceed 3,000,000 and did not opt to voluntary register as VAT taxpayers Business taxation is an advanced tax topic which will be discussed under Bu ‘Mlustration & Transfer Taxation by the same author. ‘Assume a taxpayer who is purely engaged in business had salessof P2,000,000, 7 yar fe 100,000 other income subject to regular tax and expenses of P 840,000. Normally, businesses or professional practitioners start small as non s rane taxpayers. As their business or practice gains traction and reach the P3M "he 95 jncome tax would be computed: threshold, they are mandatory required to register as VAT taxpayers. e Gross sales or gross receipts P 2,000,000 Add: Other taxable income subject to regular tax 100.000 Total P 2,100,000 Less: Annual exempt income (250.000) Covered businesses: Only vatable businesses who are below the P3M annual VAT threshold and did! register as VAT taxpayer can opt to be taxed under the 8% income tax. Net tt 7,850,000 ‘Thus, the option ig not available to: Mulipy by: Optional income tax rate 2% 8% income tax Paao00 VAT-exempt bifsiness taxpayers such as: cifically subject to other percentage taxes Individuals receiving income not subject to business tax, such as: a. Partners receiving share in net income ofa general professional parte ’. Co-owners receiving share of income in co-owned pr ‘Mixed income earner ‘Compensation income is not subject to business tax, Hence, it cannot be subjected to the 8% income tax. Due to thi income tax due from compensation shall be Separately determined using the income tax table while the 8% income tax from the business or profession shall be separately computed, For this purpose, the Serpe taxpayers c. Venturers receiving share in net income of an exempt classification rule as discussed in prior chapters must be observed. 4/ifeirs or beneficiaries of trust receiving income distribu trusts "Since the use ofthe income tax table in computing the tax due from compensation . j effectively allowed the taxpayer claim of P250,000 annual income exemption as I be no more P250,000 deduction allowable 589 \ ‘embedded in the tax table, there 588 Chapter 14 ~ Regular Income Taxation: Individuals Chapter 14 ~ Regular Income Taxation: Individuals against the basis of the 8% income tax. Furthermore, if the amount g} INTEGRATED ILLUSTRATION compensation income does not exceed P250,000, the unutilized deduction be deducted against business income since the TRAIN law did not contempla deduction cross-over. Integrated Ilustration 1 - Pure business or professional income earner Mr: Cardenas, a proprietor of a furniture shop, recorded the following income statement in 2020: Mustration 1 les of finished goods, net of P 18,000 CWTs P 2,382,000 ‘A mixed income earner realized P920,000 from compensation, P2,000,000 in of seraps and trimmings — 200.000 100,000 other income subject to regular tax and incurred P480,000 in expenses. + Total Sales/Reveriues/Recepts/Fees P 25#2,000 ‘Less: Cost of sales or services 1.200.000 ‘The income tax due under the 8% income tax option shall be computed as: Gross Income from Business/Profession P 1,382,000 ‘Add: Other income ‘Taxable r pinsame— Taxus Dividend income P 12,000 ae te eater Seen a Gain from sale ofstocks, net of capital gains tax 6,000 Residual income P 120,000 “ Interest income from deposits 16000 ul crea : Gain on sale of machinery held for 6 years 40, " 4 Interest income from bonds 14000 __170,000 Gross sales or gross receipts P_ 2,000,000 Total ocome te ‘Add: Other income subject to regular tax _ 100.000 Lessin and. selling expenses 500.000, ‘Total P 2,100,000 jon tenape P_asz090 Multiply by: Optional income tax rate 8% __168.000 income tax due Regular Tax Option iene aameed ‘The 2020 tayable net income of Mr. Cardenas shall be computed asflfows: Ihustration2 _ Net Sales/Reveres/Recnips/Fees (P2302000 +F14,000) P 2400000 ‘A mixed income earner realized P2,000,000 in sales, P100,000 in other income subf tealgae ane aneecsy tama Scat to regular tax and earned P150,000 sation fre -time employment ‘otal Saies/Revenues/Receipts/Fees 600, ve Sictdabuereetameeatikemeia octet Less: Cost of sales or services 1.200.000 Income _ ‘ax due Gross Income from Business/Profession P 1,400,000 ‘Taxable netincome P 150,000 "Add Non-operating income subject to regular tox Less: Lower tax bracket in tax table __250000 ° Gain on sale of machinery P 49,000 Excess T 100,000) n sale of bonds (P20K x 50% long-term) 10,000 Income tax due frogn compensation P 0 Interest income from bonds 14.000 ___64,000 Gross sales or gros receipts P 2,000,000 Total Gross income P 164,000 Add: Other income fubject to regular tax ——1o0.000 Less: Allowable deductions (Business expenses) 800,000 Total P 2100,000 Taxable net income 64.000 Multiply by: Optiondl income tax rate ____8% =___168.000 Income tax due PE ise000 Under the regular tax option, he would pay the following for 2020: 2 Regular income tox Note: The P100,000 excess of ¥250,000 over the compensation income cannot be del ‘Taxable net P 964,000 against the basis ofthe BY No deduction cross-over is allowed en Lower fe where | able income qualifies ___800,000 P 130,000 Excess: P 64,000 i | Multiply by: bracket marginal rate 30% ___19200 Income tax due 2 tsazo0 sso) san tro, | | | ron, Chapter 14 ~ Regular Income Taxation: Individuals, be. 396usiness tax: Net Sales/Revenues/Receipts/Fees Multiply by: Percentage tax rate ‘Total percentage tax due ‘Total taxes under the regular tax option P 2,600,000 —_i% Pp zg000 b227.200° ‘The regular income tax would be pail in three quarterly tax filing (1701Q) annual income tax return (1701). The 3% percentage tax will be paid in quarterly percentage tax returns (25519). ‘The 8% Income Tax Option Under the 8% income tax option, he would pay the following: Total Sales/Revenues/Receipts/Fees ‘Add: Non-operating income subject to regular tax Gain on sale of machinery P 40,000 Gain on sale of bonds (P20Kx50%- long-term) 10,000 Interest income from bonds 149000 ___64.000 Total Grass Income P 2,664,000 P 2,600,000 Less: Individual income exemption on income tax 250,000 Total P 2.414,000 ‘Multiply by: Optional income tax rate Income tax due ‘While it appears that the 8% option is the better option in the il always the case. At the start ofthe year wherein the option is m for sure which option would yield the lesser tax, except only If you have a information systems that enables accurate forecasting of future performance. Integrated Mustration 2 ~Mixed income earner ‘To facilitate our illustration, we shall assume the same data in the previous il except Mr. Cardenas also earned P1,200,000 in compensation income in 2020. 1 Regular Tax 0} Under the regu! a. Regular ‘Taxable compensation income P 1,200,000 864.000 P 2,064,000 7 where thetaxableincome qualifies __ 2.000000 P 490,000 excess. P 64,000 ., Multiply by: bracket marginal rate j au 20,480 Total income tax due 1 P_s10.400 592 Chapter 14 — Regular Income Taxation: Individuals bb. 3% business tax Net Sales/Revenues/Receipts/Fees ‘Multiply by: Percentage tax rate ‘Total percentage tax due P 2,600,000 ——_3% 278.000 PR spe4eo ‘Total tax paid under the regular option ‘The 8% Income Tax Option Under the 8% income tax option, he would pay the following: ‘@ Regular income tax: ‘Taxable compensation income Less: Lower limit of the income bracket ‘where the taxable income qualifies ___900,000 P 130,000 P_1,200,000 Excess P 400,000 Multiply by: bracket marginal rate 30% | ___120.000 ‘Total income tax due on compensation income B_ 250.000 b, 3% business tax Net Sales/Revenues/Receipts/Fees 2,600,000 ‘Add: Other income subject to regular tax Gain on sale of machinery P 40,000 . Gain on sale of bonds. 10,000 Interest income from bonds 14000 Total P 2,666,000 i 213.120 463.120 ‘Multiply by: Percentage tax rate ‘Total tax paid under the regular option INTERIM TRANSITION TO THE VALUE ADDED TAX Individuals exceeding the P3M VAT threshold during the year are mandatorily required to change registration from non-VaT to a VAT taxpayer before the end of the month following the month the taxpayer exceeded the P3,000,000 threshold. ‘The taxpayer shall pay regular income tax for his income during the entire year and pay VAT prospectively starting the month he became.a VAT taxpayer. The 8% income tax payments shall be considered as tax eredit against the regular income tax due. The taxpayer shall be required to pay the 3% percentage tax for sales or receipts generated before becoming a VAT taxpayer. Mlustration Mr. Quito, a pure business income earner, opted to the 8% income tax in the first ‘quarter of 2020. In june of 2020, he exceeded the P3M VAT threshold. 593, tron, (Chapter 14 - Regular Income Taxation: Individuals > chapter 14 ~ Regular Inoome Taxation: Individuals 4am.=Mareh April [une ‘The 2% quarter income tax due of Mr. Quito shall be computed as: Sales P 1,200,000 P 2,000,000 Cost of sales ‘s00.000 _ 1000000 income _Tzxdue Gross profit 7 on00 P000000 FSo0nmy YE abletncome P 774000 Gain on sale of domestic stocks 20,000, ess: Lower tax bracket 400.000 P 30,000 Gain onsale of used equipment 40.000 = P 374,000 ‘otal income P 620000 P 1040000 Psat Multiply by: ncrementaltaxrate _250h _93.800 less: Expenses ——320000 __450,000 ‘Total tax due P 123500 Net income E__200.000 P_590,000 B. ‘Less: Tax due in 1* Quarter ——7anand Income taxstill due 247500 1 Quarter January to March) j ‘Mr. Quito's first quarter total tax due under the 8% income tax shall be: Mr. Quito shall separately pay the P96,000 percentage tax ‘upon VAT registration with the P47,S00 income Sales P 1,200,000 effective July 2020. The VAT system will be dist Less: 250,000 Transfer Taxation. bal ‘cova P 950,000 Wy jonal income tax rate 8% jul ‘Total income tax due 76000 Rice de ence P 4,200,000 26! Quarter (April to June) Eicon ‘Mr. Quito exceeded the P3M VAT threshold. He shall be subject to regular tax a 2 sco or required to pay percentage tax on sales or receipts made since January 1. ine P 2140000 © ‘The percentage tax due shall be: Deciuctions (business expenses) P_ 1,070,000 “otal sales from january to june > 3200,000 Percentage tax expense sao __ 1.166000 ‘Multiply by: Percentage tax rate ___ 3% ‘Taxable income P2200 “Total percentage tax due 236000 "The 3 quarter income tax due of be computed as: —Income__ _Taxdue___ P 3.200.000 ‘Taxable income P 974000, ——1500,000 Less: Lower tax bracket __a0g.900 P 130,000 jperations 1,600,000 Excess F_ 174000 Other income subjedf to regular tax 40.000 Multiply by: Incremental taxrate _30% _$2,200 ‘Total income subjec} to regular tax P 1,640,000 Total tax due Pp 162,200 say ese: Tax due in 28 Quarter 123.500 Deductions (business expenses) P 770,000 Income tax stil t_sBnng Percentage tax expense 96.000 66,000 ‘Taxable income E7400 Mr. Quito she ately pay the quarterly VAT aside from the P58,700 income tax. ‘The same process wll be followed until the annual income : 594, 595 Hy ro, Chapter 44 ~ Regular Income Taxation: Individuals " chapler 14 — Regular Income Taxation: Individuals F “Thus, the following income shall be reported to the income tax return ofthe: ‘TAXABLE ESTATES AND TRUSTS ‘tate of ‘Taxable Estates Decadent dcxieas An estate isan income taxpayer if under judicial settlement or administration, fq compensation income P 320,000 7 estate under extra-judicial settlement is not a taxpayer. The income of the esta J Rental income (65 months xP 80,000) 20,000 steines under extra-judicial settlement is taxable to the heirs. Renta income (5.5 months x P 89,000) ‘Taxable income Eean.agg ae ‘Taxable Trusts A revocable trust is not a taxpayer and is treated as a pass-through entity income is taxable to the grantor-trustor. es 31 is 55 months {. January to july 15,2019 65 months while jy 16 to December ce U1 Gitlin at the dnt of dents ecesary a ony or prope coun of come 4 faces but also for estate taxes. In estate taxation, income accruing before death are par ‘An irrevocable trust is a separate and distinct taxable entity (BIR Ruling 0080 aoe aren se uetng afer eterocnduded July 22, 2005). A taxable trust is treated as an individual taxpayer and is allowed 20,000 personal exemption. Ifthe estate ofthe decedent is administered ically her heirs will report thelr | share in the P40,000 net rentals in their individual tax returns. Income taxable to an estate or trust under the NIRC 1. Income accumulated in trust for the benefit of unborn or unasce person or persons with contingent interests a for future distribution under the terms of the 2 Income which is to be distributed currently by the fiduciary to beneficiaries and income collected by a guardian of an infant which is tob held or distributed as the court may direct Mlustration 2: Estate come before business expenses of The estate of Mr. Barbel has P8S0,000 gross income b of 200,000. The estate administrator distributed P300,000 to the heirs in aecordan« ‘with the will of Mr. Barbel | The taxable income ofthe estate will be computed as follows: 50,000 * 3. Income received by estates of deceased persons during the period a ero Pes administration or settlement ofthe estate ss: uctions 200,000 4. Income which, in the discretion of the fiduciary, may be either distributed Lous mirrneiiy a es or accu peda allowable deduction ee income distribution to heirs —son000 _so0.000 Taxable income ofthe deceased taxpayers tictecraane 7.000 In the case of the death of a taxpayer, there shall be included in computing ta {income for the taxable period in which falls the date of his death, amounts ac up to the date of his death if not otherwise properly incudible in respect of Period ora prior period (Se. 4, NIRC) con gat muse rele htneame dbo fom he exes aspect dedon deeds The sh ce the P0000 name dbuton he taxable income. | Mlustration 3: Trust Mr. Batman designated in revocable rust property in favor of Robin and appointed Superman as trustee. The property earned P720,000 income before expenses of 'P200,000 and trust fees of P50,000. In accordance with the trust indenture, Superman distributed P100,000 to Robin. 5, 2019. Her estate underwent judicial settlement. She had tt following income in 019: Compensation income P 320,000 Rental income 960.000 The taxable income ofthe trust shall be computed as follows: Total 2.280.000 Fae P 720,000 ‘The degpdent eases a property which ears P80,000 monthly rental Less Regubrllowable deductions 250,000 Z ble deduction ‘The accounting period of the decedent shall be terminated a the date of death St Spe em etion to benefidaries 100000 _ 350000 the gestate is under judicial administration, thd estare of the decedent shall 7 Eazop00 ranable net income registered as an individual taxpayer \ 597 596 Chapter 14~ Regular Income Taxation: Individuals Note: Robin will report the P100,000 income report te P50,000 trust fees in his gross say to liminate tx savings wi the grantor may derive by delteratelysplting the corpus ofthe trees several trusts, Mlustration 1 Don Ambrocio designated three trusts ‘Trust2 Irrevocable Trust3 Revocable ‘The trustees of Trust 1 and Tr the property held under their —Tnust2_ P 400000 P 600,000 Operating income con drbuton oben 10000 0000 Tanbietoone ney 54nd ag Income tax dep tax ble 22000 p_65,000 | atediaue |] =P 64000 96.000 Income tax pai 22.000 ___ «5.000 7,000 Income tax still due 242000 P3100 P7300 located to Trust 1 and Trust 2as follows /P900,000 x P160,000 = P64,000 7 /P900,000 x P160,000 = P96,000 Chapter 14 Regular Income Taxation: Individuals not taxable as it is revocable. The entire P400,000 income of Trust 3 ing the P80,000 income distribution to Cindy will be included in the taxable sme of Don Ambrocio. lustration 2: Trusts with retention of certain rights Mr. Masagana designated two trusts as follows: Trust_[ Beneficiary Designation ‘Trust | Cassandra 1 | (daughter) Irrevocable as to corpus and income, however, Mr. Masagana reserves the power to revestto, himself 1/4 ofthe corpus upon the happening of some specified co i ‘Trust | Alexander 2 {son} respectively. Operating incor part of the corpus over which the grantor Of trusts reserved for the benefit of the grantor shall likewise be"inciuded in the taxable income ofthe grantor. “The taxable incoime of Trust 1 and Trust2 shall be computed as follows: regular itemized deductions 3. The P30,000 income which grantor shall be ikewise taxable Employee trust funds ‘An employees’ trust which forms plan of an employer for the benefit income taxes imposed und thatthis exemption covers final tax, capital gains tax, and regular income tax. ‘Trust 1 and Trust 2 earned P200,000 and P300,000 during the year. Both trusts made Aistributions to their respective beneficiaries amounting to P50,000 and 100,000, Jidated because they involve separate beneficiaries. come any income pertaining to that erved power to revoke, Any income —Tnust1_ _Trust2__ P 200000 P 300,000 *50,000 30,000 served forthe payment ofthe life insurance ofthe grantor, ler the NIRC. (Sec. 60(B), NIRC) It must be emphasized 599 eo Chapter 14 — Regular Income Taxation: Individuals Requisite of Exemption of Employee's trust 1 Contributions are made to the trust by the employer, employees, or beth the purpose of distributing to such employees the earnings and pring the fund accumulated by the trustin accordance with such plan. 2. Under the trust instrument, it is impossible at any time prior tn § employees under the trust f part of the corpus or income to be (within the taxable year or thereafter for or diverted to purposes other than for the exclusive beneft of satisfaction of all liabilities with respect employees. 3. Any amount actually distributed to any employee or distributes taxable to him in the year in which so distributed to the extent that the amount contributed by such employee or distributee. Return of Married Taxpayers Married individuals shall file a return for the taxable: both spouses, computing separately their individual impracticable for the spouses one return, each spouse may file a separate return of income. Ifany income be definitely attributed to or identified as income exclusively earned or re by either of the spouses, the same shall be divided equally between the spous for the purpose of determining their respective taxable incomes, respective total taxable income. Where Mustration Mr and Mrs, Cruz have a house which they rent to tenants earning them P4002 year. Mr, Cruz is an accountant while Mrs, Dela Cruz is an employed nurse. Mr. @ earned P 2,800,000 before P900,000 direct costs and also earned P1,200,000 compensation. Mr. and Mrs. Cruz compiled the following: Mocrws Mrs Cruz Form 23075 P 140,000 Paymentsunder1701Qs 340,000 Form 2316s 250000 Total bago.on0 p 250,000 ‘The income tax Net Sales/Revenues/Receipts/Fees ‘Ada: Other taxable income from operation Total sales/revenucs/receipts/fees Less: fost of sales or services Grost income from business/profession ‘Ada: Non-operating income (rental income) j Total Gross income 600 . Il due from the spouses shall be reported as follows: otal Gross income s: Allowable deductions Aggregate amount payable -year to include the incom ‘must be recalled from Chapter 8 that tion, lowing data during 2020: 600,000 expenses. Mr. sholding tax on compensation income “Contributions to PERA account nts for health insurance less: Exempt Qualified PERA contribution ble compensation income Mr Cruz P 2600,000 nen eax due, pr tax table aan ss: Tax reds & Geom CWT on compensation ae 5% on Qualified PERA contribution p aan : Total tax credits 7Tsxstill due and payable P 3400.00 P 601 “chapter 14 — Regular Income Taxation: Individuals compensation, net SSS, PhilHealth & HDMF “Gross compensation, net mandatory deductions Mr Cruz _Mrs. Cruz. P 3,400,000 P 700,000 600.000 = P 2,800,000 P 700,000 P_o B_1.200.000 22,900,000 P_1,900.000 P 746,000 P 460,000 480,000 __250.000 B266.000 P 110.000 Ph 878.000 Tncome of unmarried minors from property received from parents income of unmarried minors derived from property received from a living rent shall be included inthe return of the parent except when: ‘The donors tax has been paid on such property 2, The transfer of such property is exempt from donor's tax. RETIREMENT ACCOUNTS (PERA) dividuals which contributes to a PERA ccount is exempt from income tax on said contribution and are entitled to a tax Credit equivalent to 5% of said contributions. ind Mrs. Black iabel have four qualified dependents. The spouses had the —MiLabel__ _Mrs.Label_ P 500,000 P 420,000 23,000 13,000 120,000 80,000 5,000 3,000 The taxable income and tax due of Mr. and Mrs. Label shall be computed as follows: __Mr.babel_ _Mrs, Label _ P 500,000 F = 420,000 B__400009 P__340,000 P 30,000 P 18,000 P 23,000 13,000 5.000 __4.000 2 2000 P3900 Chapter 14 ~ Regular Income Taxation; Individuals chapter 14 ~ Regular Income Taxation: Individuals Note: 1. Only up to the P100,000 maximum allowable contributions per year could qualify ‘Srtsbuons Telit applied on ke sisal per individual on butor 2. The Stax edt ast be supported crite om the PERA seu sist the period, these with tax creditable or refundable, or those with balance payable only on the second installme 3, Fornon-resident taxpayers -] in case the taxpayer has no legal residence or place of business in the Philippines, the return shall be filed with the Office of the Commissioner or Reveniue District Office No. 39, South Quezon City. Return of Persons under Disability If the taxpayer is unable to make his own return, the return may be made by hi duly authorized agent or representative or by the guardian or other per charged with the care of his person or property. The principal and representative or guardian assuming the responsibilty of making the returns be responsible for penalties provided for erroneous, fase, or fraudulent return INSTALLMENT PAYMENT OF THE REGULAR INCOME TAX When the tax due is im excess of P2000, individual taxpayers (except corporations) may elect to pay the tax in two e a, The frst installment shall be pai atthe time the return is filed. b. The second installment is due on or before October 15 following the close of the calendar year. Signature in the return is presumed correct ‘The fact that an individual's name is signed to a filed retum shall be prima facie evidence for all purposes that the return was actually signed by him. IFany installment is not paid on or before the date fixed for its payment, the whole amount of the tax unpaid becomes due and payable together with the delinquency penalties ATTACHMENT TO THE ANNUAL INCOME TAK RETURN For taxpayers claiming the itemized deduction, taxpayers shall fil-up attachment form. The attachment form shows the composition of the item deductions in the annual income tax returns plus required disclosures by law 0 rrogulations. This is mandatory and shall be filed together with the income ‘return. The required attachments were discussed in Chapter 7. tion 1 ividual taxpayer avalling ofthe installment payment of his income tax had a tax due of P10,000 in 2019, He made quarterly estimated tax payments of B7,400 and was ‘withheld with P2,000 in creditable withholding taxes. WHEN AND WHERE TO FILE AND PAY TAX 1. For Electronic Filing and Payment System (eFPS) taxpayers ‘The first installment which. or before April 15, 2020 shal 12 due upon filing ofthe annual income tax return on ‘The return shall be e-fled and the tax e-paid on or before the 15% day of P of ch year covering the income for the preceding year using the ¢f ss through the BIR website. 2. For Non-Electronic Filing and Payment System (non-eFPS) taxpayers ‘The retum: “ filed and the tax paid on or before the 15% day of April | Less: Creditable wit Quarterly esti ‘Taxpayable ‘each year coveripg the income forthe preceding year wit Any authorifed agent banks (AAB) located within the jurisdiction of| Revenue Dict Officer (RDO) where the taxpayer is registered ‘ b, Revenue Collection Officer (RCO) under the jurisdiction of the RDO whes® | the taxpayer is registered, if there is no AAB ’ 1m case of ‘no payment returns” the same shall be filed with the RDO whe® the taxpayer is registered or has his legal residence or place of business in Philippines or withthe concerned RCO under the same RDO. “Ho payment return” pertains to tax returns grithout tax payable such as th ‘with negative or zero taxable income, those whth exempt or no operation dt! ' ‘The second installment which shall be due on or before October 15, 2020 shall be: ‘Tax due on first installment (P10,000/2) B_s000 Mhystration 2 An individual taxpayer availing ofthe installment payment of his 2019 income tax had tax due of P7,000 and was subjected to creditable withholding tax of P4,000. ‘The frst installment is nll The taxpayer shall fila return but with no payment. | Tax due on first installment (P7,000/2) P3500 Less: Creditable withholding tax 4,000 ‘Tax payable 500) 602 603 —— Chapter 14 — Regular Income Taxation: Individuals ‘chapter 14 — Reguiar Income Taxation: Individuals AMENDMENT OF INCOME TAX RETURN ‘The amounts indicated by the taxpayer in the income tax return are his assertions. “The same are deemed final unless amended by the taxpayer. Within three years ‘The second installment due on or before October 15,2020 shall be: ‘Taxue on firstinstallment (P7,000/2) P aso0 Less: Excess withholding tax in firstinstallment — (___500] from the required date of filing of the return, the taxpayer can amend the same so pee ram Jong as no Letter of Authority for investigation is issued by the BIR for the Mlustration3 - Late payment examination of his tax return, ‘Assume the same facts in the preceding illustration, except that the second instal ‘was paid on November 15, 2020. ‘Amended returns shall not be subject to surcharges for late fling or late payment imposed the interest penalties. Chapter 4. The taxpayer shal pay the following before compromise penalties: ‘Tax still due P 3,000 ‘Add: Surcharge (25% x P3,000) 750 Intorest (12% x 61/365 x P3,000) ——s0 Total amount due 2310 ‘WHO SHALL FILE THE INCOME TAX RETURN? 11. A resident citizen engaged in trade, business, or practice of profession with ‘and without the Philippines 2. Aresidentalien, non-resident citizen, or non-resident al in trade, business, or practice of profession within the P 3. A trustee ofa trust, guardian of a minor, executor/administrator of an est or any person acting in any fiduciary capacity for any person where such tris estate, minor, or person is engaged in trade or business. 4. An individual engaged in trace or business or in the exercise of tht profession and receiving compensation income as well. j WHO ARE NOT REQUIRED TO FILE INCOME TAX RETURN? 1. Minimum waggearners se gross income does not exceed P250,000 3. An individual whhose compensation income derived from one employer ‘not exceed P60,b00 and the income tax on which hias been correctly withhé 4, Individuals whidse income has been subjected to final withholding tax suc Inthe case of non-resident aliens not engaged in trade or business 5. Pure compensation earners qualified under the substituted filing system , 608 - som, Chapter 14 — Regular income Taxation: Individuals apter 14 — Regular Income Taxation: Inividvals CHAPTER 14: SELF-TEST EXERCISES ultiple-Choice: Theory - Part 1 Discussion Questions |, Who isa resident citizen? 1. Enumerate the conditions ofthe substituted ling sytem, fa. Acitizen who wenton tour abroad 2. Discuss how the regular taxis computed for each type of individual taxpayer, 1b. Acitizen of the Philippines who establishes to the satisfaction of the CIR the 3._ Discuss the requisites of the 8% optional inc factofhis physical presence abroad witha definite intention to reside therein 4. Demonstrate how the computation ofthe 8% optional income tax Actizen of the Philippines who leaves the Philippines during the taxable year 5, Discuss the taxation of deceased taxpayers, the estate and trusts toreside abroad 6. Demonstrate the consolidation of multiple trusts. ‘d.Acitizen of the Philippines who works and derives income abroad and whose 7. Discuss the exemption conditions of an employee trust fund. employment requires him to be physically present abroad most of the time 8, Whenand where do individuals fle and pay the regular income tax? dluringthe year 8 Discuss the conditions and rules of the installment payment ofthe regular inca tax, 10. Whore required to file income tax returns? 11. Who are not required to file income tax returns? . following is an individual whose residence is within the Philippines ‘nota citizen thereof? a. Resident citizen -Resident alle b. Non-residentalien d.Non-residentcitizen ‘Trueor False {s considered engaged in trade or business inthe Philippines 1. Arevocable trust does not pay income tx. Falcone consid ena i ada pp 3. Norse pron shal ect rourm the Oera be Conia a atleast 183days. more than 103 days of Internal Reverte, b. atleast 180days. __d. morethan 180 days. 4. The income distribution by a taxable estate or trust is a special deduction to estate or trust, but is an Item of gross income to the recipient heir or beneficiary. 5. The lacome of minors from properties recived as donations fom parent taxable to the minor ifthe donation is exempt from the dot 6. ‘The husband and the wife are treated as separate taxable ‘compute his or her taxable Income, but both of them shal ‘Include the income of both spouses. 7. The income of minors from properties received as donations from parent taxable to the parents ifthe donar’s tax on the donation is not paid. 8. Adisabled person need not file return by virtue of his disability. 9. The taxpayer's sign the Income tax return is presumed prima fa 10. Large taxpayers Shall e-file their tax returns through the BIR Electronic Fl Payment System 11, Two or more trufts are consolidated as a single trust when both are design@ for the same benficiary without regard to their grantor. 12, When the grantor reserved for himself part of the income of the trust, th s shall be treated as income ofthe grantor. 13. Atrusteed employee pension fund does not pay income tax. 14, The substituted filing of tax returns does not apply when there is concurrent sucgessive employment ofthe employee during the year. 15. An employee trust fund must be managed by the employer to be tax-exempt. j ' 606 . (On which of the following dates shall a citizen who let the Philippines during the year be classified as a non-resident citizen for the year? a May31 July 15 b. july3t d.Novernber 30 {in alien shall be classified as resident in 2014 if he arrived in the Philippines on which of the following dates? a. December 30,2013 c.July 15,2014 b. January 1,2014 December 31,2014 ‘An individual whose residence is not within the Philippines and who is not @ citizen thereof a Resident citizen Resident alien b. Non-residentalien Non-resident citizen ach spouse a single return ”. How long does a citizen have to stay abroad before being classified as a non- resident? a Atleast 183 days ¢ More than 183 days bb. Atleast 180 days ‘More than 180 days How long shall an alien have to stay in the Philippines before being classified as a resident alien? a Atleast 183 days Atleast 1 year b. Morethan 183 days d.Morethan 1 year 607 Chapter 14 — Regular Income Taxation: Individuals 9. ‘The length of stay of individuals for purposes of taxpayer classifi reckoned as of ‘ are a a. December 31 ofthe current year. 'b, December 31 of the prior year. the day the alien individual leaves the Philippines. 4. the day the 10. Which ofthe following is not subject a regular income tax? engaged in trade or business not engaged in trade or business who has been in the country since July 1, 2013 is classified asa tizen c.NRA- ETB ¢.NRA~NETB 12, In 2016, an American who had been a resident in the Philippines since August 2016isa a. resident etizen, b, residentalien, . NRA- ETB. @.NRA-NETR ‘Multiple-Choice: Theory ~ Part 2 1L._ Which ofthe following is subject to final tax? a. 13%month pay and other benefits . Supplemental compensation Fringe benefits 4. Regular compensation income 2. Which of the following cannot claim deduction from gross income? lly from employment citizens engaged in business jens deriving mixed income from employment and business 5 deriving a mix of passive income and business income 3. Towhich ofthe flowing does the substituted filing system apply? a. Purely empléyed taxpayers b. Taxpayers purely engaged in business Mixed income taxpayers 4. Any of these 4. Whith isnota requisite ofthe substituted filing system? a. "The taxpayer musthave only one source of business income. 3) ‘Tetaxpayermusthae only one employeruring the yer i 608 (Chapter 14 — Regular Income Taxation: Individuals The taxpayer has no other source of gross income subject to regular tax other than compensation. 4. The employer did not commit errors in the computation of the employee's income tax. 5, Which of the following employees is not required to file an annual consolidated Income tax return? a. Those with concurrent employment during the year ', Those with successive employment during the year ing income distribution from a general professional partnership, taxable trusts, or taxable estates 4. Those earning purely compensation income when the employer correctly withheld the tax 6, Ataxpayer who is both engaged in business and employments not a. subjectto the ig taxon salaries by his employer. ‘required to file quarterly income tax on business income. required to consolidate his quarterly mixed income for quarterly tax reporting. 4. required to flean annual consolidated income tax return. Which indivi income taxpayer can claim tax credit for foreign taxes paid? ‘¢.Non-resident citizen 4.all ofthese Resident alien 8. Whatis the optional standard deduction claimable by individual income taxpayers ‘who are engaged in business? a, 25% of gross income b, 2506 of sales or receipt «40% of gross income 4.4035 of gross receipt or sales iual income taxpayers submit thelr annual or consolidated return for the year 20207 a. April 15,2020 b. November 15,2020 April 15,2021 d._15iday ofthe fourth month following the fiscal year ofthe taxpayer 10, Which ofthe following taxes isa resident citizen or alien subject? a. Final tax Regular tax ‘b. Capltal gains tax d.allofthese LL. Anon-tesidentalien, not engaged in trade or business is not subject to a. final tax. b. capital gains tax. Chapter 14 - Regular Income Taxation: Individuals Multiple-Choice: Theory Part3 ‘Who isnot required to file quarterly income tax return? a. Pure compensation income earner '. Pure business income earner Pure professional income earner Mixed income earner 2. Whois not subject to withholding tax on compensation? 2. Nised income earner BL Pure compensation income earner & Minimum wage earner @ Noneotthose 3. An inavidual who want to pay the regular income tx using optional sta ‘deductions shall use ra a Form1700 «Form 17014 Form 1701 d.Form1702 4 Individuals opting to be taxed under 0%6incometaxshall use a Form 1700 «Form 17018 8. Form 701 dorm 1702 5. Trusteand estates shall se whch tax form Form 1700 Form 17014 Room 1701 dorm 1702 6. Anadjustment return is least likely to be required when a. The employee receives compensation from multiple employers 1. The employeo has two successive employers during the year & Theemployer has under-withheld the tax 4. Theemployer has over-withheld the tax 7. -Aminimum wage earner who is subjected a. file an adjus|ment return and pay residual tax. b. file quartefly income tax returt filean adjustment return and claim tax refund. 4. donothing. tax exemy a jEad table. 2» ach fat alowed P500000 income ti exemption inthe taxable in the tax table? }ouse shall be entitled to a P250,000 income tax exemption in the i 610 If husband and wife are both employed, which is correct regarding their inco! Chapter 14 ~ Regular Income Taxation: Individuals Either the husband or the wife can take advantage of the P500,000 income ‘exemption inthe tax table. 44. Only the husband shall be allowed the P250,000 income tax exemption in the taxtable. ‘5, A husband earned P450,000 taxable income. His wife also earned P100,000 taxable income. Which is true? a, There will be no aggregate tax due for the spouses. 'b, Thehusband pays tax while the wife is exempt. ©. The wife pays the tax while the husband is exempt. 4, Both spouses will report tax due. 10, Ifthe husband is employed with P 700,000 taxable income while his wife is ‘unemployed, he shall will be acwally subject to tax on a P700,000 of income. ¢.P 350,000 of income. b. 450,000 ofincome. d.P 200,000 of income. of the following scenario will still require an adjustment return from the ‘employee even if the employers correctly withheld the tax on their compensation payments? 2. Employee has concurrent employment Employees had successive employees during the year .. The employee earned income from other sources |. All ofthese 4 12. An employee who earned income from other sources shall use which annual a. Form1700 ¢ Form 17014 b. Form1701 Form 1702 13, Which is a source of tax eredit against the tax due under Form 1701 a Form2316 17019 b. Form 2307 callofthese 14, Which isa tax credit against the tax due under Form 1700? a. Form2316 17019 b. Form 2307 a Allof these 15, The first quarter income tax return is due April 15 of the same year ‘April 25 ofthe same year May 15 ofthe same year May 25 ofthe same year ape en | | tro, Chapter 14 ~ Regular Income Taxation: Individuals 16, The third quarter income tax return is due a August 15ofthesame year ‘August 25 ofthe same year November 15 ofthe same year November 25 ofthe same year 117. Which is incorrect regarding the 8% optional income tax? a Itsubstitutes the regular income tax and the 3% percentage tax. b. The8% income tax option is irrevocable for the year itis made. ‘May be opted to ifthe taxpayer claimed optional standard deduction, 4. May beused even ifthe taxpayer is also an employee. Gross income from operation 1b. Gross receipts «Other gross income subject to regular tax 19. Which i an item of income subject to regular tax? 2 Dividend income c.Gainon sale of domestic stocks Royalty income 4. Gain on sale of equipment 20. Who isnot allowed the option to be taxed at 89? a Compensation income earner Business income earner © Professional income earner d. Mixed income earner 21. Statement 1: There is no need to file a consoli on compensation and the expanded withholding tax is correctly Statement 2: A businessman who is deriving income from a sole customer ne not file a consolidated return if the customer correctly withheld any expand withholding tax. « False; True False; False ha us 1. Trixie’s business{fises a fiscal year accounting period starti 1¢ 30 for internal reporting, Her business reported the following quart income on a fiscal year basis: FISCAL YEAR 2018-2019 | 2019-2020 ‘Quarter (July 10 September 30) 190,000 [210,000 = 2a Quarter (October 1 to December 31) 220,000 | 250,000 3 Quarter (1/1/2020 ~ 3/31/2020) 10,000 7 # Quarter (4/1/2020 — 6/30/2020) 200,000 612 . ‘Chapter 14 - Regular Income Taxation: Individuals 2 Compute the taxable net income to he reported April 15, 20217 a. P790,000 ©. P840,000 b, Pgt0,000 .P850,000 lerson, married 15 dependents, had the following income within and outside the Philippines: Philippines Abroad ‘Compensation income P 280,000 - Rental income 50,000 190,000 Royalties - books 32,000 25,000 Domestic dividends 9,000 - Foreign dividends 40,000 Compute his taxable income assuring she is a resident. a. P330,000 .P495,000 b. 371,000 4.P 536,000 Compute his taxable income assuming she is a resident alien a. P330,000 ©. P 495,000 b. P371,000 4.P 536,000 1. Henrie, a managerial employee, received the following employee benefits in 2020: ies,net of mandatory and exemptbenefits _P 4,000,000 , bonus 800,000 Director's fees 200,000 Car designated forthe use of Henrie 2,500,000 House and lot, transferred in the name Henrie 5,000,000, Compute the taxable income of Henrie. a. 12,500,000 .P 5,000,000 b. P7,500,000 4.P 4,300,000 In the immediately preceding problem, compute the fringe benefittax forthe year. a P1346,153 6 P2826.923, b. P2692,308 4.P 4,036,462 ‘The following relate to the net income ofthe firm of Mr. Aguin 0. Odi Professional fees P 600,000 Long-term capital gain 80,000 Short-term capital gain 45,000 Ordinary gain 20,000 Long-term caph (90,000) Short-term capital loss (30,000) Ordinary loss (40,000) Other business expenses (200,000) Net income 2 385,000 613 Chapter 14 ~ Regular Income Taxation: Individuals Compute his taxable income. | a. 385,000 «-P410,000 1 b. 390,000 4.P 435,000 | 7. Shown below is the summarized result of operations of Mr Chiz Mozo’s bu Sales P 900.000 Cost of sales 200,000, Gross profit 600,000 * Other deductible expenses 100,000 Contributions expenses: Government priority project 50,000 Non-accredited non-profit institution 55,000 Foreign foundation 25.000 Net income E3700 Compute his taxable income, a 400000 ©.P420,000 b. P4050 4.P 450,000 1. During the year, Coleen received compensation income of P455,000 after P15 ‘withholding tax on compensation, Compute her income tax still due, a P 48,750 cP 28,750 b. P 47500 4. 32,500 9. A Filipino citizen has 400,000 Philippine income and P300,000 foreign incom He paid P55,000 income taxes absoad. Compute the allowable tax credit for the i income taxes paid abroad. a [ a PO P4500 b. 40000 P5500 ‘ 10. Inthe preceding problem, what isthe tax eredit if the taxpayer was a non-resi ‘ citizen ora resident alien? a PO P4500 b. P40000 § 4. 55,000 Multiple Choice: vf -Part2 bt 1. Kareen received! the following income from her employment in 2020: Gross salaries 400,000 i Deductions for: ¥ P 10,000 Withholding tax Meo Loans repayment ‘Tardiness and absences Net pay Chapter 14 - Regular Income Taxation: Individuals 50,000 150000 e240,600 ‘Compute Kareen's taxable compensation income. ©? 358,000 d.P-490,000 a. 240,600 b. P290,600 ‘employment, her sole source of income: Salaries, net of P59,000 withholding tax ‘and P12,000 mandatory payroll deductions Expenses: = Load expenses Medical expenses ‘Transportation expenses Food, rent & utilities ,. Mary made the following computations of her annual financial savings from 321,000 P 10000 8,000 25,000 100,000 20,000 15.000 b43.000 ‘What is Mary's taxable compensation income in 20207 a P220,000 b. P322,000 ¢ P 380,000 4. 392,000 Service fees, net of 5% withholding tax Dividends from a domestic corporation Interest income from: bank Expenses: Office utilities expenses Staff salaries = Rent & miscellaneous expenses ‘Tuition fees of S dependent children Personal medical expenses Net business income |. Mr. Roger presented the following schedule of income in 2020: P 617,500 20,000 10,000 P 30,000 120,000 130,000 100,000 15.000 2.297.500 ‘Total deductible expense against gross income Is a PO ©. P 330,000 b. 230,000 .P 345,000 Compute Roger's taxable net income. a. P305,000 ©. P 387,500 b. P320,000 .P 420,000 615 rom, Chapter 14 — Regular income Taxation: Individuals Compute the tax still ue, a. P21,500 refundable b. P18,500 refundable 5,000 refundable 4.P 2500 payable 5. Compute the tax still due if Mr. Roger opted to the 8% optional tax. a 31,800

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