FABM 2 - INCOME AND BUSINESS TAXATION

(Purely from compensation income, Income from business- Self-employed and or professionals, and Mixed
income earners)

ILLUSTRATION #1

Rosario San Pedro, single and a resident citizen, is a minimum wage earner (MWE) with a gross
compensation income for the year 2018 of P180,000. She works as a finance assistant of BIG Corporation in
the Philippines. In addition to her basic salary, Ms. San Pedro also earned a 13th month pay of P15,000,
overtime pay amounting to P100,000, night shift differential of P30,000, and holiday pay of P25,000. Ms. San
Pedro also paid for her mandatory contributions in Social Security System (SSS), Philhealth, and Pag-IBIG, for
a total of P6,000. How much is her taxable income and income tax due?

ILLUSTRATION #2

Mr. Jose Gantimpala, 33, Filipino, single, is a regular employee of Wise Marketing. He receives an annual
salary of P300,000. For 2019, he also earned an overtime pay of P50,000 and hazard pay of P57,250. He also
received his 13th month pay of P25,000 as well as other benefits amounting to P72,000. His mandatory
contributions are as follows:

SSS P9,600.00
Pag-ibig & Philhealth 4,125.00
HDMF 1,200.00
Total P14,925.00

ILLUSTRATION #3

Mrs. Rhea Alvarez, married and a resident Citizen, is a regular employee of Health is Wealth Company. She
receives monthly salary of P52,000 or P624,000 annually. For 2019, she has also received her 13th month
pay and other benefits amounting to P109,000. Her mandatory contributions are as follows:

SSS P9,600.00
Philhealth 8,250.00
Pag-IBIG 1,200.00
Total P19,050.00

ILLUSTRATION #4

Ms. Terry operates a convenience store while she offers bookkeeping services to her clients.

In 2018, her gross sales amounted to P800,000.00, in addition to her receipts from bookkeeping services of
P300,000.00. She already signified her intention to be taxed at 8% income tax rate in her 1st quarter return.
Her income tax liability for the year will be computed as follows:

ILLUSTRATION #5

Ms. Terry above, failed to signify her intention to be taxed at 8% income tax rate on gross sales in her initial
Quarterly Income Tax Return, and she incurred cost of sales and operating expenses amounting to
P600,000.00 and P200,000.00, respectively, or a total of P800,000.00.

The income tax shall be computed as follows:

ILLUSTRATION #6

Christy operates an online retail store and works as a freelancer providing digital marketing services. This year
she earned P1,200,000 from her retail activity and P700,000 from her freelancing work. Her cost of sales for
the retail activity is P650,000 on top of other operating expenses amounting to P230,000.

Compute the income tax due:

a. 8% tax rate
b. Graduated rate

ILLUSTRATION #7

Mr. Madz, a Financial comptroller of JAC Company, earned annual compensation in 2018 of P1,500,000.00,
inclusive of 13th month and other benefits in the amount of P120,000.00 but net of mandatory contributions to
SSS and Philhealth. Aside from employment income, he owns a convenience store, with gross sales of
P2,400,000. His cost of sales and operating expenses are P1,000,000.00 and P600,000.00, respectively, and
with non-operating income of P100,000.00.

CONTINUATION OF SAMPLE ILLUSTRATION 1

On February 2019, taxpayer tendered his resignation to concentrate on his business. His total compensation
income amounted to P150,000.00, inclusive of benefits of P20,000.00. His business operations for the taxable
year 2019 remains the same. He opted for the eight percent (8%) income tax rate.

ILLUSTRATION #8

Mr. Wayne, an officer of BATS International Corp., earned in 2018 an annual compensation of P1,200,000.00,
inclusive of the 13th month and other benefits in the amount of P120,000.00. Aside from employment income,
he owns a farm, with gross sales of P3,500,000. His cost of sales and operating expenses are P1,000,000.00
and P600,000.00, respectively, and with non-operating income of P100.000.00. His tax due for 2018 shall be
computed as follows:

ILLUSTRATION #9

Belle, an accounting clerk in ABC Marketing generated an annual compensation income of P615,000. Her
statutory contributions are as follows:

SSS-P6,975.60; Philhealth-P5,250; Pag-ibig-P1,200; 13th month pay and other bonuses-P61,250.

She has also a grocery store with gross sales of P475,000.00 every quarter of the taxable year. The annual
cost of sales is 40% of annual gross sales and operating expenses is 60% of gross profit. Compute the
taxable income and total tax due if:

a. Belle availed of the 8% Tax Rate

b. Belle opted to Graduated Rate
C. How much is her total due (PIT and Business Tax)?
D. Which option is favorable to Belle?