y _ chapter 14 - Regular Income Taxation: Individuals CHAPTER 14 chapter Overview and Objectives | all tax rules relevant income taxation of individuals are already covered in revious chapters. This chapter aims to provide an integration of all income tax i ules which are specifically relevant to individual taxpayers in order to simulate a closer to reality depiction of individual income taxation in practice. After this chapter, readers are expected to demonstrate mastery on the following: 4, Determination of tax under the regular income tax option 2. Determination of tax under the 8% income tax option 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 INDIVIDUAL INCOME TAXATION The Regular Income Tax for Individuals The income tax of individuals is determined through the following tax table: Year 2018 to Year 2022 Taxable income Tax due [P250,000 and below None (0%) | Above P250,000 to P400,000 20% of excess above P250,000 | ‘Above P400,000 to P800,000 __| P30,000 + 25% of excess over P400,000 Above 800,000 to P2,000,000 __ P130,000 + 30% of excess over P800,000 Above P2,000,000 to P8,000,000 | P490,000 + 32% of excess over P2,000,000 “Above P8,000,000 - 2,410,000 + 35% of excess over P8,000,000 Year 2023 Onwards ______ Taxable income sae 250,000 and below None oe) Soe Ab )0 15% of excess above h Above eae oad a ED 22,500 + 20% of excess over P400,000 _ Above 800,000 to P2,000,000 _ P102,500 + 25% of excess over P800,000 Above P2,000,000 to P8,000,000 . P402,500 + 30% of excess over P2,000,000 Above P8,000,000 P2,205,500 + 35% of excess over P8,000,000 591ora Chapter 14 ~ Regular Income Taxation: Individuals TAXPAYERS SUBJECT TO PROGRESSIVE INCOME TAX The progressive income tax for individuals covers the following: t 1. Citizens { a, Resident citizen ! b. Non-resident citizen 2. Aliens a. Resident alien b. Non-resident alien engaged in business 3. Taxable estate 4. Taxable trust CLASSIFICATION OF INDIVIDUAL INCOME TAXPAYERS For purposes of the regular tax, individual income taxpayers are classifi 1. Pure compensation income earner 2. Pure business or professional income earner 3. Mixed income earner ied as; PURE COMPENSATION EARNER The compensation income of employees, except minimum wage earners, is subject to withholding tax on compensation. Every employer is mandatorily required ts deduct the withholding 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 correc withheld 2. Tax credit - if the employee has other taxable income or if the tax is not correctly withheld Employees with no other income If the employee has no other taxable income, he may avail of the substituted filing system. Under this system, the withholding tax on compensation is considered enough evidence of tax compliance of the employee, provided that the employer withheld the correct tax. Conditions of the Substituted Filing System 1, The employee received purely compensation income during the year. 2. The employee received the income from only one employer in the Philippines during the taxable year. 3. The amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer (i.e., correct tax is withheld). 4. The employee's spouse also complies with all 3 conditions stated above. 5. The employer files the annual information return (BIR Form No. 1604-CF). 6. The employer issues BIR Form No. 2316 to each employee. 592ry apron 4 Regular Income Taxation: Individuals uted filing system shall who do not meet the conditions of the substit e following Joye i ga annual OF final adjustment return not later than April 15 of th e and claim Form 2316 as tax credit. jidated or Adjustment Return ostited or adjustment return isneeded when: forrect tax is not withheld + ployee oF his spouse has other income grecttax due not withheld by employer ‘he correct tax due of the employee will least likel Myer in the following cases: Concurrent employment + uccessive employment during the year ence of error by the employer needs to be filed to adjust the tax due to the correct amount of e employee shall claim Form unt as tax ly to be withheld by the 3, ‘Incurr eturn referred to as an adjustment return. Thi .d pay residual tax due or claim excess withheld amot jn annual tax This is p3i6as tax credit an creditor tax refund. Concurrent employment ‘employed in Yousee Company and in Youbee Com ind withheld tax in 2023: lustration 1: Vic Luna is both following income ai pany. He has the ' —Yousee_ _Youbee_ Taxable compensation income P.450,000 350,000 Withheld tax p.42500 P 20,000 Mr. Estoque’s consolidated income tax shall be computed as follows: Tuable compensation income (P450,000+P350,000) P.800,000 Income tax due, per individual tax table P 102,500 Less: Tax withheld by employers (P42,500+P20,000) 62,500 P_40,000 Income tax payable or (refundable) Illustration 2: Successive Employment During the year, Zeus resigned from Blue Moon Company and transferred employment to Gagamba Company. The following were his income: BlueMoon Gagamba_ P 300,000 P 400,000 Taable compensation income 10,000 30,000 | Taxwithheld from compensation 593ey Chapter 14 - Regular Income Taxation: Individuals a Zeus shall file a consolidated return covering his total 2020 income from employment and pay the residual tax as follows: bot 8 Taxable compensation income (P300,000 + P400,000) P200,000 ‘ Income tax due, per individual tax table P 82,500 1 Less: Tax withheld by both employers Income tax payable or (refundable) P__42,500 # i Mlustration 3: Employer error ' t In 2022, Jeff's employer withheld a total of P 56,000 out of his P460,000 tarade ( compensation income. J 1 Since the tax withheld is erroneous, Jeff shall file an annual adjustment retu St mand pay | residual tax due or claim refund or tax credit for excess withholding, as follows: ‘Taxable compensation income P_460,009 Income tax due, per individual tax table P 45,000 Less: Tax withheld by employers Income tax payable or (refundable) (211,000) Jeff shall use BIR Form 1700.as adjustment return. Employees has other taxable income Employees other income subject to regular tax may come from: a. Castial sources b. Engagement in business or practice of a profession If the employee has other taxable income, the employee is mandatorily required to file an annual income tax return to incorporate other income sources in his return. This is referred as a consolidated income tax return, The consolidated income tax return may either be: 1. BIR Form 1700 - ifthe employee is not engaged in business or profession 2. BIR Form 1701 for mixed income earners - if the employee is also engaged it business and or profession The withholding tax on compensation (BIR Form 2316) given by the employe" shall be claimed as tax credit. i Fin 2316) sien: by Mustration ~ With other casual income Mr. Sung Kiis a sales executive. He recei i jon and benefit from his employer: e received the following compensation 594ry 4 Regular Income Taxation: Individuals potter 1 Pe compensation income P 987,000 t pea penefits 84,000 penefits (paid personal vacation) 81,000 i ry deduction for SSS, PhilHealth, HDMF 40,000 a avphoding tax deducted under Form 2316 125,750 slo derived the following other income: eet ncome from corporate bonds, net of 15% withholding tax P 76,500 stincome FFO™D bank deposits, net of 20% final tax 16,000 inten sale a arts collection (held 3 years) 124.000 fealineome B216,500 Me Kishall file BIR Form 1700 to include his other income subject to regular tax: seestincome from bonds (P76 500 / 85%) P 90,000 apse of arts collection (P124,000 x 509 long term) 62,000 other income P152,000 rial employee and the interest income from sue: The fringe benefits ofan executive - a manage ‘ome subject to regular tax. The sts are subject to final tax. These are excluded in gross inc rated final taxes are not-creditable. ‘thetax credits shall be: P 125,750 compensation (Form 2316) 2307) 13,500 Withholding tax on e interest (P90K x 15% under Form Withholding tax on the cs taxable income shall be computed as: Gross compensation income P 987,000 lass: Mandatory deductions P 40,000 Exempt benefits 84.000 Taable compensation income P 863,000 Aid: Other income subject to regular tax Table income 21,015,000 ynall be computed as: Mr. Ki's income tax still due sI P 156,250 locome tax due less: Tax credit i Form 2316 P 125,750 d Form 2307 13,500 come tax still due P_12.000 The consolidation procedures of employees engaged in business or practice of a Hofession will be discussed under mixed income earners. 595Chapter 14 - Reguiar Income Taxation: Individuals PURE BUSINESS AND/OR PROFESSIONAL INCOME EARNER Individual taxpayers engaged in business or practice of profession quarterly income tax returns (BIR Form 1701Q) and an annual tax return fe Quarterly Tax Returns Deadline 18 Quarter ITR- 1701Q May 15 of the same calendar year 2™ Quarter ITR- 1701Q ‘August 15 of the same calendar year 3% Quarter ITR- 17019 November 15 of the same calendar year ‘The taxable income from business or profession may be computed using: 1. Itemized deductions 2. Optional standard deduction Mlustration 1 - Itemized deduction Mrs. Macipag. a self-employed taxpayer, had the following quarterly income detas 2023 Jan-March April-June. _July-Sept_ _ Oct. - Dec Gross receipts P 600,000 P $20,000 P $50,000 P 580,000 Less: Cost of services — __120.000 ___200.000 ___250.000 270,000 Gross income B_480.000 P__320.000 P 300,000 P_ 310.000 Less: Expenses Business expenses P 100,000 P 130,000 P 120,000 P 140,000 Personal expenses __60.000 ___63.000 ____58.000 ___85.000 Total P_160.000 P__193.000 P__178.000 P__225,000 Net income 320.000 P__127,000 P__ 122.000 P___ 85.000 Withholding tax P 4000 P 10.000 P_ 15,000 P_—_14,000 Her quarterly and annual taxable income and tax due shall be computed oa bt cumulative year-to-date taxable income as follows: Aste 2nd Qu. aed Qtr. Annual TR Gross receipts P 600,000 P 1,120,000 P 1,670,000 P 2.250.000 Less: Cost of sales 120.000 ___320.000 _570.000 840.009 Gross income P 480,000 P- 800,000 P 1,100,000 P 1.410.008 Less: Deductions 100.000 ___230.000 350,000 eros Bawmogoo E—s70000 E—zso.000 B22 596chapter 14 - Regular Income Taxation: Individuals income tax due P 19,500 P ‘ eed 56500 P 92,500 P 132,500 vss "CWT this quarter P4000 P_ 10,000 P_— 15,000 P_— 14,000 | CWT prior quarters “Total eredits B_4000 214.000 P29.000 P 15,500 P ee ae _P 42,500, F 63500, P 89.500 in prior quarters o * 1sso0 “4 42500 %_63500 } Income tax still due B15500 227.000 B__21.000 b_26.000 lt Utestration 2 = Options! stander acceding Let us assume the same in the preceding problem, except that the taxpay opted touse the optional standard deduction in 2023. ms ‘The quarterly and annual taxable income and tax due shall be computed as follows: AstOu. 2nd Ou 3nd Orr — Annual TR_ P 600,000 P 1,120,000 P 1,670,000 P 2,250,000 Gross receipts Less: OSD - 40% _240.000 ___ 448,000 Taxable net income Pasoooo Bo7z000 P_1002000 P_L3s0.000 Income tax due P 16,500 P 76,900 P 153,000 P 240,000 Less: Tax credits . CWT this quarter Pp 4,000 P 10,000 P 15,000 P 14,000 CWT prior quarters. ____0 Total credits P4000 P__14.000 P 12,500 P 62,900 P 124,000, P= 197,000 Less: Estimated tax paid ‘ S cs ___o S12soo 4 629000 “124.000 in prior quarters Income tax still due Excess quarterly estimated tax over the quarterly tax due may, at the option of the taxpayer. be carried forward to quarters of the succeeding med through tax refund. The option must be indicated in the taxable year or clai annual adjustment return. Once the option to carry-over is made, it becomes irrevocable for that period. The option to refund The option pba may be in the form of cash of a tax credit certificate. If the the excess refundable amount should not be carried option to refund is sel over as tax credit to the ng quarters of the following year. $97Chapter 14 - Regular Income Taxation: Individuals MIXED NeOMe, ae of mixed income earners will be subjected to the ie compensatica] compensation by their employers. Mited income an wt a their business or professional income on a quarterly basis under woul a The compensation income shall not be reported in the quarteri, a It al be included only in the annual consolidated return. Mixed income earners shall use BIR Form 1701. citer our discussion, let us assume the same data in the Previous illustration, except that Mrs. Macipag is also employed with the following income in 2023, Employment - April-June. _July - Sept. = Oct-Dec, Taxable compensation P 250,000 P 260,500 P 245,250 P 231,250, Withholding tax on compensation (Form 2316) : 93,750 Gross income P 480,000 P 320,000 P 300,000 P 310,009 Itemized deductions __100,000 ___ 130,000 =—120.000 ___140,000 Net income P380,000 P 190,000 Pp 180,000 P_170,000 Form 2307s P 4,000 P 10,000 P 15,000 P 14,000 Mrs. Macipag shall report her quarterly income from business or profession and pay the same quarterly income tax due as computed in the Previous illustration: Quarterly income tax due P_19.500 ~p 56500 P__ 92509 p m ‘The taxable income of Mrs. Macipag for the year shall be computed as: P__987,000 Taxable compensation income Gross income P 1,810,000 Less: Deductions “490.000 Taxable income - business P__ 20.000 Total taxable income P_19907,000 Mrs. Macipag sh; all fle BIR Form 1701 for h idated i al income ‘ast duestallbecge co er consolidated income. Her anu: 598er chapter 14 - Regular Income Taxation: Individuals jncome tax due P 354,250 jess: Tax credit WH tax on compensation (Form 2316) P 93,750 Expanded withholding tax (Form 2307s) 43,000 Estimated tax payments (Form 170103) gaan” "ahh ashy Income tax still due PB 154,000 THE 8% INCOME TAX OPTION ‘he TRAIN law introduced a new tax scheme for individual 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 rade, the option shall be irrevocable for the calendar year. Nature: 1, Abundled tax - itis in lieu of: a, Regular income tax, determined through the income tax table b. 3% general percentage tax 2, Anannual option It is valid for as long 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 a VAT taxpayer during the year. 3, Paid quarterly and annually Scope: ‘a, Pure business or professional income earners b. Mixed income earners Business Tax: A Basic Overview Aside from income tax, individuals engaged in business or exercise of a profession are also required to pay a business tax which is either a 3% percentage tax or a 12% value added tax (VAT). Types of business taxpayers: 1. Exempt businesses - not subject to VAT or percentage tax Examples: en a. Businesses selling agricultural products in original state b. Agricultural contract growers © Book publishers or bookstores 2. Business specifically subject to other percentage taxes - not subject to VAT but subject to percentage tax of various rates 599Chapter 14 - Regular Income Taxation: Individuals Examples: a a, Common carriers by land, such as taxi, jeepney, bus and car for hire b. Operators of cockpits, cabarets, clubs, jai-alai or horse race track 3. Vatable businesses - other businesses Vatable businesses either pay: a. 12% value added tax ~ if their annual sales exceed P3,000,009 they registered as VAT taxpayers b. 3% general percentage tax - if their annual sales do not P3,000,000 and did not opt to voluntary register as VAT taxpay Business taxation is an advanced tax topic which will be discussed under & Transfer Taxation by the same author. OF When exceed ers the Business Normally, businesses or professional practitioners start small as non.ygp taxpayers. As their business or practice gains traction and reach the P3} threshold, they are mandatorily required to register as VAT taxpayers, Covered businesses: Only vatable businesses who are below the P3M annual VAT threshold and did not M Var register as VAT taxpayer can opt to be taxed under the 8% income tax. Thus, the option is not available to: 1, VAT-registered business taxpayers 2. VAT-exempt business taxpayers such as: a, Exempt businesses b. Businesses specifically subject to other percentage taxes 3. Individuals receiving income not subject to business tax, such as: peop trusts Tax obligations of individual non-VAT taxpayers: .. Partners receiving share in net income of a general professional partnership . Co-owners receiving share of income in co-owned properties :. Venturers receiving share in net income of an exempt joint venture |. Heirs or beneficiaries of trust receiving income distribution from estates or Regular tax option 8% Income tax option Regular income tax 3 quarterly 1701Qs and 1 3 quarterly 1701Qs and! annual 1701 or 1701A annual 1701 or 17018 Percentage tax 4 quarterly1551Q None wey Ue OT VAT-registered taxpayers pay VAT and regular income tax. 600 ch oc 1h of st e22Pchapter 14 - Regular Income Taxation: Individuals ante ss ‘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. For pure business or professional income earners, the use of the 8% 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 8% income tax shall be computed from the basis net of P250,000. Illustration ‘Assume a taxpayer who is purely engaged in business had sales of P2,000,000, net of 50,000 sales discounts, P100,000 other income subject to regular tax and expenses of P-840,000. The 8% income tax would be computed as: Net sales /receipts/revenues/fees P 2,000,000 Add: Other non-operating income 100,000 Total taxable income P 2,100,000 Less: Annual exempt income (250.000) Net total P 1,850,000 Multiply by: Optional income tax rate 8% Tax due P1488, Mixed income earner Compensation income is not subject to business tax. Hence, it cannot be subjected to the 8% income tax. Due to this, the 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 classification rule as discussed in prior chapters must be observed. Since the use of the income tax table in computing the tax due from compensation effectively allowed the taxpayer claim of P250,000 annual income exemption as embedded in the tax table, there will be no more P2S0,000 deduction allowable against the basis of the 8% income tax. Furthermore, if the amount of compensation income does not exceed P250,000, the unutilized deduction cannot be deducted against business income since the TRAIN law did not contemplate a deduction cross-over. Mlustration 1 A mixed income earner realized P920,000 from compensation, P2,000,000 in sales, P100,000 other income subject to regular tax and incurred P480,000 in expenses. 601 Lo ahoo The income tax due under the 8% income tax option shall be computed as. —Taxdue Chapter 14 - Regular Income Taxation: Individuals ‘Taxable compensation income P 920,000 Less: Lower tax bracket in tax table 800.000 P 192.599 Residual income P 120,000 : Multiply by: Incremental tax rate bo Tt Dy Tax due - compensation income P — S200 32.500 Gross sales or gross receipts P_ 2,000,000 Add: Other non-operating income Total P- 2,100,000 Multiply by: Optional income tax rate 8% Tax due ~ business 168.000 Total tax due B__300.500 Mlustration 2 ‘A mixed income earner realized P2,000,000 in sales, P100,000 in other income su to regular tax and earned P150,000 compensation from part-time employment, je Taxable net income P 150,000 Less: Lower tax bracket in tax table 250,000 P 0 Excess ( 100,000) Tax due - compensation income P =a Gross sales or gross receipts P 2,000,000 Add: Other income subject to regular tax Total P 2,100,000 Multiply by: Optional income tax rate 8% Tax due - business 168, Total tax due P__168,000 Note: The P100,000 excess of P250,000 over the compensation income cannot be deducted against the basis of the 8%. No deduction cross-over is allowed. INTEGRATED ILLUSTRATION Integrated Illustration 1 - Pure business or professional income earner Mr. Cardenas, a proprietor of a furniture shop, recorded the following income statement during the year: Net sales of finished goods, net of P 18,000 CWTs P 2,382,000 Sales of scraps and trimmings Total Sales/Revenues/Receipts/Fees P 2,582,000 Less: Cost of sales or services Gross Income from Operations P 1,382,000 602Ne ees chapter 14 - Regular Income Taxation: Individuals Other income Mi ividend income P. 12,000 Gain from sale of stocks, net of capital gains tax 68,000 interest income from deposits 16,000 Gain on sale of machinery held for 6 years 40,000 Gain on sale of bonds held for 2 years 20,000 Ipterest income from bonds —14.000 __170,000 rfaltncome P 1,552,000 ‘The Regular Tax Option ‘The taxable net income of Mr. Cardenas shall be computed as follows: Net Sales/Revenues/Receipts/Fees (P2,382K + P18K + P200K) P 2,600,000 Less: Cost of sales or services —1200,000 Gross Income from operation P 1,400,000 Less: Allowable deductions (Business expenses) 600,000 Net income P 800,000 dd: Non-operating income Gain on sale of machinery P 40,000 Gain on sale of bonds (P20K x 50% - long-term) 10,000 Interest income from bonds 14,000 64,000 Taxable net income B_864,000 Taxes to pay a. Regular income tax: Taxable net income P 864,000 Less: Lower limit of the income bracket where the taxable income qualifies 800.000 P 102,500 Excess - 64,000 Multiply by: bracket marginal rate 25h. 16.000: Income tax due P_118,500 b. 3% business tax: Net Sales/Revenues/Receipts/Fees P 2,600,000 Multiply by: Percentage tax rate Pee Total percentage tax due P_78.000 Total taxes under the regular tax option P_196,500 The regular income tax would be paid in three quarterly tax filing (1701Q) and an annual income tax return (1701), The 3% percentage tax will be paid in four quarterly percentage tax returns (2551Q). The 8% Income Tax Option Under the 8% income tax option, he would pay the following: 603 eo a 4Chapter 14 — Regular Income Taxation: Individuals ic Total Sales/Revenues/Receipts/Fees P 2,600,000 He Add: Non-operating income subject to regular tax . Gain on sale of machinery P 40,000 Gain on sale of bonds (P20K x 50% - long-term) 10,000 Interest income from bonds —_ 64.000 Total taxable income P 2,664,000 Less: Individual income exemption Taxable income (loss) ie P 2,414,000 Multiply by: Optional income tax ra ay Tax due P__193.120 Mr. Cardenas shall file and pay the commuted tax BIR Form 1701A. No There ig to need to file BIR Form 2551Qs. While it appears that the 8% option is the better option in the illustration, it is not always the case. At the start of the year wherein the option is made, you could not tell for sure which option would yield the lesser tax, except only if you have accun, information systems that enables accurate forecasting of future performance, Integrated Illustration 2 -Mixed income earner To facilitate our illustration, we shall assume the same data in the previous illustration except Mr. Cardenas also earned P1,200,000 in compensation income in 2024, Regular Tax Option Mr. Cardenas would pay the following for 2024: a. Regular income tax: Taxable compensation income Taxable income - business 864,000 P 2,064,000 Total taxable income Less: Lower limit of the income bracket where the taxable income qualifies —2.000,.000 P 402,500 P 64,000 Excess Multiply by: bracket marginal rate 30% ___19.200 P___421,700 Total income tax due P 1,200,000 b. 3% business tax: Net Sales /Revenues/Receipts/Fees P 2,600,000 Multiply by: Percentage tax rate —__ 3% Total percentage tax due P___.78,000 Total taxes paid under the regular option P__499,700 Mr. Cardenas shall file and pay the income tax under BIR Form 1701 and the business tax using BIR Form 2551Q. 604ee LL Ly ter 14 Regular Income Taxation: Individuals p chat come Tax Option seas ‘would pay the following: taxable compensation income P 1,200,000 ® Lower limit of the income bracket where the taxable income qualifies 00,000 Excess P 400,000 ultiply by: bracket marginal rate 25% ax due - compensation income et Sales/Revenues /Receipts/Fees P 2,600,000 ‘Add: Other non-operating income subject to regular tax Gain on sale of machinery P 40,000 Gain on sale of bonds 10,000 Interest income from bonds 14,000 Total P 2,664,000 pee BOG Multiply by: Percentage tax rate Tax due - business income Total tax due Mr. Cardenas shall file and pay the tax under BIR Form 1701. INTERIM TRANSITION TO THE VALUE ADDED TAX P= 102,500 ——100,000 P__ 202,500 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 credit 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. lustration Mr. Chinito, a pure business income earner, opted to the 8% income tax in the first quarter of 2024. In June of 2024, he exceeded the P3M VAT threshold. Sales P 1,200,000 P 2,000,000 P 1,000,000 Cost of sales ——600,000 __ 1,000,000 Gross profit P 600,000 P 1,000,000 P 500,000 Gain on sale of domestic stocks 20,000 30,000 Gain on sale of used equipment ee eee Total income P 620,000 P 1,040,000 P 530,000 Less: Expenses ——320,000 ___450,000 ___ 300,000 Netincome P__300,000 P_590,000 P___230,000 605ON — | Chapter 14 - Regular Income Taxation: Individuals 41 Quarter (January to March) Mr. Chinito's first quarter total tax due under the 8% income tax shall be, Sales P 1,200,000 Less: Income exemption 250,000 Taxable income P 950,000 Multiply by: Optional income tax rate “8% Total income tax due P.__76,000 2™ Quarter (April to June) Mr. Chinito exceeded the P3M VAT threshold. He shall be ‘subject to regul: required to pay percentage tax on sales or receipts made since January 1.” The percentage tax due shall be: Total sales from January to June P 3,200,000 Multiply by: Percentage tax rate 3% Total percentage tax due 2 96,000 The taxable income of Mr. Chinito in the second quarter shall be computed as folloys Sales P 3,200,000 Less: Cost of sales Gross income from operations P 1,600,000 Less: Deductions (business expenses) P 770,000 Percentage tax expense ——26.000 Net income P 734,000 ‘Add: Non-operating income subject to regular tax 40,000 Taxable net income P__774,000 The 2" quarter income tax due of Mr. Chinito shall be computed as: —tncome_ Taxable income P 774,000 Less: Lower tax bracket ——400,000 P 22,500 Excess P 374,000 Multiply by: Incremental tax rate 20% ___74,800 Total tax due P 97,300 Less: Tax due in 1% Quarter Income tax still due P2130 : ss} Mr. Chinito shall separately pay the P96,000 percentage tax which shall be 258; upon VAT registration with the P21,300 income tax. Mr. Chinito shall pat T7, effective July 2024. Value added tax will be discussed in Business & Transfer llrr oe chapter 14 - Regular Income Taxation: Individuals quarter Quly to September) ere P 4,200,000 finssincome from operations See 2,100,000 ves sductions (business expenses) Pp 1,070,000 Percentage tax expense 96,000 Net income ‘Md: Non-operating income subject to regular tax bsisn0 | Taxable net income Saray ‘The3" quarter income tax dite of Mr. Chinito shall be computed as: Taxable net income P 974,000 Less: Lower tax bracket 800000 P 102,500 Excess P 174,000 Multiply by: Incremental tax rate 25% Total tax due P 146,000 Less: Tax due in 2”! Quarter Income tax still due ie 22.500 Mr. Chinito shall separately pay the quarterly VAT aside from the P22,500 income tax. The same process will be followed until the annual income tax return. TAXABLE ESTATES AND TRUSTS Taxable Estates An estate is an income taxpayer if under judicial settlement or administration. An estate under extra-judicial settlement is not a taxpayer. The income of the estate under extra-judicial settlement is taxable to the heirs. Taxable Trusts Arevocable trust is not a taxpayer and is treated as a pass-through entity whose income is taxable to the grantor-trustor. An irrevocable trust is a separate and distinct taxable entity (BIR Ruling 003-05, July 22, 2005), A taxable trust is treated as an individual taxpayer. Income taxable to an estate or trust under the NIRC 1. Income accumulated in trust for the benefit of unborn or unascertained Person or persons with contingent interests and income accumulated or held for future distribution under the terms of the will or trust 607 be ab— Chapter 14 - Regular Income Taxation: Individuals 2. Income which is to be distributed currently by the beneficiaries and income collected by a guardian of an infa held or distributed as the court may direct 3, Income received by estates of deceased persons during the per: administration or settlement of the estate Period 4. Income which, in the discretion of the fiduciary, may be either Aistributey to fiduciay " nt Which jg ut the beneficiaries or accumulated Taxable income of the deceased taxpayers In the case of the death of a taxpayer, there shall be included in computin, income for the taxable period in which falls the date of his death, amount up to the date of his death if not otherwise properly includible in respect of period or a prior period. (Sec. 44, NIRC) Such Mlustration 1: Deceased taxpayer Miss X died on July 15, 2023. Her estate underwent judicial settlement. She hadi following income in 2023: . Compensation income P 320,000 Rental income 960,000 Total P_1.280,000 ‘The decedent leases a property which earns P80,000 monthly rental. The accounting period of the decedent shall be terminated at the date of death. Sine the estate is under judicial administration, the estate of the decedent shall be registered as an individual taxpayer. Thus, the following income shall be reported to the income tax return of the: Estate of the Decedent decedent Compensation income P 320,000 - Rental income (6.5 months x P 80,000) 520,000 . Rental income (5.5 months x P 80,000) p_440,000 Taxable income P_840,000 p.440,000 Note:, 1, January 1 to July 15, 2023 is 65 months while July 16 to December 31 is 5.5 months. 2. Cut-off of income at the date of death is necessary not only for proper accounting of Inco taxes but also for estate taxes. In estate taxation, income accruing before death are P< {gross estate while those accruing after that are excluded. A their Ifthe estate ofthe decedent is administered extra-judicially, her heirs will repo" share in the P440,000 net rentals in their individual tax returns. aad: — choot? 14 - Regular Income Taxation: Individuals gustration 2: Estate estate of Mr. Barbel has P850,000 gross income before business expenses of 0,000. The estate administrator distributed P300,000 to the heirs in accordance nthe will of Mr. Barbel. ‘the taxable income of the estate will be computed as follows: Gross income P 850,000 Less: Ordinary allowable deductions P200,000 special allowable deduction Income distribution to heirs 300,000 _ 500,000 axable net income 350,000 gate: It must be recalled that income distribution from the estate is a special deduction against Je grass income of the estate. The heirs shall include the P300,000 income distribution in their taxable income. Mlustration 3: Trust Mr. Batman designated in irrevocable trust a property in favor of Robin and appointed Superman as trustee. The property earned P720,000 income before expenses of 200,000 and trust fees of PS0,000. In accordance with the trust indenture, Superman distributed P100,000 to Robin. ‘The taxable income of the trust shall be computed as follows: Gross income P 720,000 Less: Ordinary allowable deductions 250,000 Special allowable deduction Income distribution to beneficiaries 100,000 _.350,000 Taxable net income P.320,000 Note: Robin will report the P100,000 income distribution in his taxable income. Superman will report the P50,000 trust fees in his gross income. Consolidation of two or more trusts Multiple irrevocable trusts designated by the same grantor for the benefit of the same beneficiary shall be consolidated for purposes of income tax. is necessary to eliminate tax savings which The consolidation of irrevocable trusts ly splitting the corpus of the trusts into the grantor may derive by deliberatel several trusts. Mlustration 1 Don Ambrocio designated three trusts all in favor of his daughter, Cindy: 609® Chapter 14 - Regular Income Taxation: Individuals Operating Distribution mist. Designation __Trustee_ i —income _ Trust1 —_ Irrevocable Aj P 400,000 P 40,000 Trust2 Irrevocable B 600,000 60,009 Trust3 Revocable qj 400,000 80,000 The trustees of Trust 1 and Trust 2 shall prepare tax returns Covering the ing the property held under their control as follows: Ome —Tnustl_ __Trust2__ Operating income P 400,000 P 600,000 Less: Special itemized deduction Income distribution to beneficiary ___40,000 —— 60,000 Taxable income 2360000 P_ 540,000 Income tax due per tax table b_16500 P 50500 For purposes of income taxation, the income of Trust 1 and Trust 2 will be consolidated as follows: Consolidated Trust 4 Trust2 Trust Taxable net income P_360,000 P__540,000 Income tax due P 127,500 Allocated tax due P 51,000 P 76,500 Less: Income tax paid ——16500 ___50500 _ 67,000 Income tax still due b__34500 P 26,000 P 60500 The consolidated tax due is allocated to Trust 1 and Trust 2 as follows: - Trust 1 = P360,000/P900,000 x P127,500 = P51,000 - Trust 2 = P540,000/P900,000 x P127,500 = P76,500 Trust 3 is not taxable as it is revocable. The entire 400,000 income of Trust 3 including the P80,000 income distribution to Cindy will be included in the taxable income of Don Ambrocio, Mlustration 2: Trusts with retention of certain rights Mr. Masagana designated two trusts as follows: Trust [Beneficiary Designation Irrevocable as to corpus and income, however, Trust | Cassandra | Mr. Masagana reserves the power to revest to 1 | (daughter) | himself 1/4 of the corpus upon the happening of some specified contingencies. Irrevocable as to corpus and income except that Trust | Alexander | P30,000 of the annual income will be used to pay 2 (son) _| the life insurance premium of Mr. Masagana. 610 ses—_— Ne of chapter 14 ~ Regular Income Taxation: Individuals qrust 1 and Trust 2 earned P200,000 and P300,000 during the year. Both trusts made distributions to their respective beneficiaries amounting to P50,000 and P100,000, respectively. he two trusts will not be consolidated because they involve separate beneficiaries. However, the grantor shall include in his taxable income any income pertaining to that part of the corpus over which the grantor has reserved power to revoke. Any income of trusts reserved for the benefit of the grantor shall likewise be included in the taxable income of the grantor. ‘The taxable income of Trust 1 and Trust 2 shall be computed as follows: cee —Tusti1_ __Trust2_ Operating income P 200,000 P 300,000 Less: Special regular itemized deductions Income pertaining to grantor *50,000 30,000 Distribution to beneficiaries 50,0 100, Taxable net income P_100,000 P__170,000 Note: 1. The grantor has reserved power to revoke one quarter of the corpus in Trust 1. 2. The P50,000 income pertaining to such part, computed as (P200,000 x %4), shall be taxable upon the grantor. 3. The P30,000 income which shall be reserved for the payment of the life insurance of the grantor shall be likewise taxable to the grantor: Employee trust funds An employees’ trust which forms part of a pension, stock bonus, or profit sharing plan of an employer for the benefit of some or all of his employees is exempt from income taxes imposed under the NIRC. (Sec. 60(B), NIRC) It must be emphasized that this exemption covers final tax, capital gains tax, and regular income tax. Requisite of Exemption of ‘Employee's trust 1. Contributions are made to the trust by the employer, employees, or both for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan. 2 Under the trust instrument, it is impossible at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for or diverted to purposes other than for the exclusive benefit of his employees. 3. Any amount actually distributed to any employee or distributee shall be in which so distributed to the extent that it exceeds taxable to him in the year t the amount contributed by such employee or distributee. 611ON Chapter 14 - Regular Income Taxation: Individuals Return of Married Taxpayers : Married individuals shall file a return for the taxable year to include the ing, both spouses, computing separately their individual income tax baseq oe respective total taxable income. Where it is impracticable for the Spouses - ‘one return, each spouse may file a separate return of income. If any income ¢ fl be definitely attributed to or identified as income exclusively earned oy Teali by either of the spouses, the same shall be divided equally between the Spo for the purpose of determining their respective taxable incomes. Sey Iustration ' Mr. and Mrs. Cruz have a house for rent earning them P1,400,000 a year. Mr. Cruz isa accountant while Mrs Cru is an employed nurse. Mr Cruz earned 3,600,000 ya 900,000 direct costs and P600,000 expenses. Mrs. Cruz also earned Pien* ; 1.200, compensation, Mr. and Mrs. Cruz compiled the following: i} MoCruz = Mrs.Cruz Form 2307s P 140,000 Payments under 1701Qs 340,000 Form 2316s ——____ 2.250.000 Total 2.480000 P_250,000 The income tax and still due from the spouses shall be reported as follows: —Mr Cruz _Mrs. Cruz Taxable compensation income P 0 P_4200,005 Net sales/revenues/receipts/fees P_ 3,600,000 Less: Cost of sales or services ——200,000 _ 7 Gross Income from operations P 2,700,000 P 0 Less: Allowable deductions ——800,000 ___- Net income P 2,100,000 P : Add: Non-operating income (rental income) 700,000 ____700,000 ‘Taxable income - business P_2,800,000 Pp 700,000 Total taxable income P2,800,000 P_ 1,900,000 Income tax due P 642,500 P 377,500 Less: Tax credit 480,000 Tax still due P_162,500 P__127,500 Aggregate amount payable 290,000 Income of unmarried minors from property received from parents The income of unmarried minors derived from property received from a living Parent shall be included in the return of the parent except when: 1. The donor's tax has been paid on such property. 2. The transfer of such property is exempt from donor's tax. 612chante! 14 - Regular Income Taxation: Individuals AL EQUITY RETIREMENT ACCOUNTS TAX CREDIT (PERA-TCC) uated Cee eat are entitled to a tax credit equival fa oe a contributor has to directly request of PERA-TCC. The TCC may be used as follows: lent to 5% of said the PERA Pure com} yensation earner rely in pusiness/profession or Applied against withholding tax due Applied against individual income tax liability Pu mixed income earner, ‘Overseas Filipino deriving purely d from abroa iiustration rand Mrs. Black had the following data during 2023: ensation Ith & HDMF withholding tax on ‘compensation income personal contributions tO PERA account mplayer contribution to PERA account payments for heath insurance ‘the taxable income and tax d Gross comp sss, PhillHea Gross compensation Less: Non-taxable comp’ Taxable compensation income ensation Income tax due, per tax table Less: Tax credits CWT on compensation 5% on Qualified PERA Total tax credits Taxstill due and payable contribution Note: 1. Up to the P100,000 maximum allowable ributions. be compul e employer: ployer is n qualify as PERA conti 2. The 5% PERA-TCC will excluding those made by th 3. Portion contributed by the em Return of Persons under Disability Ifthe taxpayer is unable to make duly authorized agent oF represen jue of Mr. and Mrs. Black contributions (P20 she limit is appli ted only from the jot taxable incom his own return, tative or by Applied against any direct internal revenue tax liabilit P 500,000 P 420,000 P 15,000 P 10,000 23,000 13,000 120,000 80,000 0 20,000 5,000 3,000 shall be computed as follows: Pp 500,000 P 420,000 15.000 p_495,000 P_-#10,000 p 39,500 P 24,500 P 23,000 13,000 5.00 p__28,000 p___12,000 0,000 for OFWs) per year could of per individual contributor. ied on the basis tributed by the PERA contributor .e amount cont tothe employee the return may be made by his the guardian or other person 613ON charged with the care of his person or Property. The principa} i representative or guardian assuming the responsibility of making the r is hy be responsible for penalties provided for erroneous, false, or fraudulent retu is, Chapter 14 - Regular Income Taxation: Individuals Signature in the return is presumed correct ‘The fact that an individual's name is signed toa filed return shall be Prima fa evidence for all purposes that the return was actually signed by him, ie ATTACHMENT TO THE ANNUAL INCOME TAX RETURN For taxpayers claiming the itemized deduction, taxpayers shal] fill-up attachment form. The attachment form shows the composition of the ite ie deductions in the annual income tax returns plus required disclosures by ne regulations This is mandatory and shall be fled together with the income return. The required attachments were discussed in Chapter 7, WHEN AND WHERE TO FILE AND PAY TAX 1. For Electronic Filing and Payment System (eFPS) taxpayers The return shall be e-filed andthe tax e-paid on or before the 15% day ofp of each year covering the income for the preceding year using the efs facilities through the BIR website. . For Non-Electronic Filing and Payment System (non-eFPS) taxpayers The return shall be filed and the tax paid on or before the 15¢ day of Apilot each year covering the income for the preceding year with: a. Any authorized agent banks (AB) located within the jurisdiction of the Revenue District Officer (RDO) where the taxpayer is registered b. Revenue Collection Officer (RCO) under the jurisdiction of the RDO where the taxpayer is registered, if there is no AAB In case of “no payment returns,” the same shall be filed with the RDO where the taxpayer is registered or has his legal residence or place of business inthe Philippines or with the concerned RCO under the same RDO. “No payment return” pertains to tax returns without tax payable such as these with negative or zero taxable income, those with exempt or no operation during the period, those with tax creditable or refundable, or those with balance payable only on the second installment. » For non-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 0" Revenue District Office No. 39, South Quezon City. 614re costo 44 — Regular Income Taxation: Individuals , ystaLLMENT PAYMENT OF THE REGULAR INCOME TAX en the tax v4 is in excess of 2,000, individual taxpayers (except corporations) may elect to pay the tax in two equal installments: The first ee shal Pa paid at the time the return is filed. he second installment is due on or before i > ne calendar year. fore October 15 following the close of jnstallment is not paid on or bef i ifany install efore the date fixed for its payment, the whole i pot of the tax unpaid becomes due and payable together with the delinquency penalties. jqustration 1 individual taxpayer availing of the installment payment of his income tax had a tax que of 10,000 for the year 2023, He made quarterly estimated tax payments of y24o0 and was withheld with P2,000 in creditable withholding taxes. +t installment which shall be due upon filing of the annual income tax return on ‘The firs! 1 pefore April 15, 2024 shall be: tax due on first installment (P10,000/2) P 5,000 Less: Creditable withholding taxes P 2,000 Quarterly estimated tax payments 2.400 4,400 taxpayable The second installment which shall be due on or before October 15, 2024 shall be: ‘tax due on first installment (P10,000/2) P5,000 Illustration 2 Anindividual taxpayer availing of the installment payment of his 2022 income tax had atax due of P7,000 and was subjected to creditable withholding tax of 'P4,000. For the first installment on April 15, 2023, the taxpayer shall file a return, but with no payment. Tax due on first installment (P7,000/2) Pp 3,500 Less; Creditable withholding tax Tax payable (2-500) The second installment due on or before October 15, 2023 shall be: Tax due on first installment (P7,000/2) P 3,500 Less: Excess withholding tax in first installment (5000) Tax payable Mustration 3 - Late ent Assume the same eae preceding illustration, except that the second installment Was paid on November 15, 2023. 615Chapter 14 ~ Regular Income Taxati uals The delay in payment shall result in the imposition of the penalties discus Chapter 4. The taxpayer shall pay the following penalties: Sed Tax still due P 3,000 Add: Surcharge (25% x P3,000) 750 Interest (12% x 31/365 x P3,000) 31 Compromise* ——1.000 Total amount due P4781 *See compromise table at Appendix 4 WHO SHALL FILE THE INCOME TAX RETURN? 1. A resident citizen engaged in trade, business, or practice of profession wit, and without the Philippines. in 2. A resident alien, non-resident citizen, or non-resident alien individual enga in trade, business, or practice of profession within the Philippines. eed 3. A trustee of a trust, guardian of a minor, executor /administrator of an state or any person acting in any fiduciary capacity for any person where such trust, estate, minor, or person is engaged in trade or business, 4 4. An individual engaged in trade or business or in the exercise of their Profession and receiving compensation income as well, WHO ARE NOT REQUIRED TO FILE INCOME TAX RETURN? 1. Minimum wage earners 2. An individual whose gross income does not exceed P250,000 3. An individual whose compensation income derived from one employer does not exceed P60,000 and the income tax on which has been correctly withheld 4. Individuals whose income has been subjected to final withholding tax such as in the case of non-resident aliens not engaged in trade or business 5. Pure compensation earners qualified under the substituted filing system 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 from the required date of filing of the return, the taxpayer can amend the same so long as no Letter of Authority for investigation is issued by the BIR for the examination of his tax return. Amended returns shall not be subject to surcharges for late filing or late payment but shall be imposed the interest penalties, 616a F 15, An employee trust fund mus © 6 The income of minors chapter 14 ~ Regular Income Taxation: Individuals (HAPTER 14: SELF-TEST EXERCISES piscussion Questions Enumerate the conditions of the substituted filing system. Discuss how the regular tax is computed for each type of individual taxpayer. Discuss the requisites of the 8% optional income tax. Demonstrate how the computation of the 8% optional income tax. piscuss the taxation of deceased taxpayers, the estate and trusts. * Demonstrate the consolidation of multiple trusts. piscuss the exemption conditions of an employee trust fund. When and where do individuals file and pay the regular income tax? Discuss the conditions and rules of the installment payment of the regular income tax. 10. Who are required to file income tax returns? 11, Who are not required to file income tax returns? qrue or False 1. The husband and the wife are treated as separate taxable units. Each spouse shall compute his or her taxable income, but both of them shall fle a single return to include the income of both spouses. 2, Arevocable trust does not pay income tax. Estates under judicial administration are considered individual taxpayers 4, Non-resident persons shall file their tax return to the Office of the Commissioner of Internal Revenue. 5, The income distribution by a taxable est estate or trust, but is an item of gross incot from properties taxable to the minor if the donation is exe! a 1. The income of minors from properties received as donations from parents is taxable to the parents ifthe donor's tax on the donation is not paid. 8. Adisabled person need not flea return by virtue of his disability. . ‘The taxpayer's signature in the income tax return is presumed prima facie correct. 10. Large taxpayers shall e-file their tax returns through the BIR Electronic Filing and Payment System. 11. Two or more trusts are for the same beneficiary wi 12. When the grantor reserved for himself part o! shall be treated as income of the 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 or during the year. successive employment of the employee ‘tbe managed by the employer to be tax-exempt. ate or trust is a special deduction to the me to the recipient heir or beneficiary. received as donations from parents is mpt from the donor's tax. « gle trust when both are designated ir grantor. f the income of the trust, the same consolidated as a sin} ‘thout regard to thei 617~~ Chapter 14 - Regular Income Taxation: Individuals Multiple-Choice: Theory - Part 1 1. An individual whose residence is n the Philippines and who jg citizen thereof : a a, Resident citizen Resident alien fh) Non-resident alien d, Non-resident citizen 2. Whois aresident citizen? @) Acitizen who went on tour abroad . A citizen of the Philippines who establishes to the satisfaction of the cir fact of his physical presence abroad with a definite intention to reside ey ©. Acitizen ofthe Philippines who leaves the Philippines during the taxable” to reside abroad Year d. A citizen of the Philippines who works and derives income abroad and ‘Who; employment requires him to be physically present abroad m: “s ost of the ti during the year - 3. Which of the following is an individual whose residence is with in the Philipp; but who is nota citizen thereof? “Peles a. Resident citizen esident alien b. Non-resident alien “d. Non-resident citizen ' ‘+ Anon-tesidentalienjs considered engaged in trade or business in the Philippines ifhe stayed therein for a. atleast 183 days. c. more than 183 days. b. atleast 180 days. eeynore than 180 days, 5. On which of the following dates shall a citizen who left ‘year be classified as a non-resident citizen for the year? 4) May31 - July 15 July 31 - d. November 30 6. An alien shall be classified as resident in 2024 if he arrived in the Philippines on which of the following dates? @ December 30, 2023 c. July 15,2024 the Philippines during the January 1, 2024 d. December 31, 2024 7. How long does a citizen have to stay abroad before being classified as a non- resi lent? ‘Atleast 183 days c. More than 183 days Atleast 180 days d. More than 180 days 8. How long shall an alien have to stay in the Philippines before being classified a5@ | resident alien? a, Atleast 183days - c. Atleast 1 year b. More than 183 days More than 1 year 618| chapter 4 Regular Income Taxation: individuals ta 4, the le h of Individuals for purposes of taxpayer classification Is s eckoried as of * December 31 of the current year, ” December 31 of the prior year, ¢ theday the alien individual leaves the Philippines. g, the day the Individual taxpayer files his income tax return. 40, Which of the following ts Not sublect to regular income tax? a Resident citizen p, Resident alien ¢, Non-resident allen engaged in trade or business 6 Non-resident alien not engaged in trade or business 41, n2024, an alien who has been in the country since July 1, 2023 {s classified as a a, Resident citizen c. NRA- ETB (by Residentallen d, NRA - NETB in 200 an American who had been a resident in the Philippines since August 14, 2024 isa a resident citizen. c.NRA- ETB b, residentalien. * (GPNRA- NETB Multiple-Choice: Theory - Part 2 1, Ataxpayer who is both engaged in business and employment(s no} a. subject to the withholding tax on salaries by his employer- b, required to file quarterly income tax on business income. required to consolidate his quarterly mixed income for quarterly tax reporting. d. required to file an annual consolidated income tax return, 2. Which of the following may be subject to final tax? ‘a. 13 month pay and other benefits b, Supplemental compensation d, Regular compensation income C 3. Which of the following cannot claim deduction from gross Income? @ Resident citizens dexiving income sale! . Non-resident citizens engaged in business ©. Resident citizens deriving mixed income from employment and business Resident aliens deriving a mix of passive income and business income £ Towhich ofthe following does the substituted filing system a ly? @ Purely employed taxpayers ‘S. Taxpayers purely engaged in business 619ee Chapter 14 - Regular Income Taxation: Individuals ¢. Mixed income taxpayers d. Any ofthese 5. Which is i i tem? ‘:) ‘The taxpayer must have only one source of business income, The taxpayer must have only one employer during the year. | The taxpayer has no other source of gross income subject to regular ta than compensation. ther 4. The employer did not commit errors in the computation of the empl. income tax. veer | 6. Which of the following employees is not required to file an annual Consolidatey i turn? Ss a. Those with concurrent employment during the year b. Those with successive employment during the year ©. Those deriving income distribution from a general professional Partners, | _z taxable trusts, or taxable estates m ) Those earning purely compensation income when the employer correctly withheld the tax 7. Which individual income taxpayer can claim tax credit for foreign taxes @ Resident citizen c. Non-resident citizen Resident alien d. All of these 8. Whats the optional standard deduction claimable by individual income taxpayer who are engaged in business? a. 25% of gross income b. 25% of sales or receipt 1% of gross income (40% of gross receipt or sales ‘ 9. When should individual income taxpayers submit their annual or zonsolidated | return for the year 2024? a. April 15, 2024 b. November 15, 2024 April 15, 15% day of the fourth month following the fiscal year of the taxpayer 10. Which of the following taxes is a residonteetizen-or alien subject? a. Final tax : c. Regular tax b. Capital gains tax (a 1A non-resident alien,not engaged in trade or business is not subject to a. final tax. (@kegular tax, b. capital gains tax. i None of these 620Sead Ate de peter 14 Regular Income Taxation: Individuals yotiple-cholce: Theory ~ Pare 3 whois notreauited 0 file quarteriy income tax return? /Q) Pure compensati ; Pure business income earner ¢. Pure professional income earner - , d. Mixed income earner is not subject to with! i ¥ 2 IM ued income eamee aon conpensain? b, Pure compensation income earner (© Minimum wage earner a. None of these An individual who is purely engaged in business wh | income tax using ae ‘want to pay the regular a. Form 1700 C Fomi7014 (ck b. Form 1701 4. Form 1702 Apurely engaged in profession opting to be taxed under a Form1700 (Ce. Form 1701A b, Form 1701 . Form 1702 8% income tax shall use ‘Trusts and estates shall use which tax form a. Form 1700 ¢. Form 1701 b, ) Form 1701 4. Form 1702 Anadjustment return is least likely to be required when (a.) The employee receives cor i multiple em, | A The employee has two successive employers during the year © The employer has under-withheld the tax 4. The employer has over-withheld the tax ‘Aminimum wage earner who is subjected to withholding tax shall a file an adjustment return and pay residual tax. file a quarterly income tax return. dilean adjustment return and claim tax refund, do nothing. husband and wife are both employed, which is correct regarding their income {ax exemption in the tax table? a) Each spouse shall be entitled to a P250,000 income tax exemption in the tax table b. Each family is allowed 500,000 income tax exemption in the tax table, 621 bhrr Nee © Bither the husband or the wife can take advantage of the P500,000 4 exemption in the tax table, eg 4, Only the husband shall be allowed the P250,000 income tax table, Chapter 14 - Regular Income Taxation: Individuals tx exempton ing 9. A husband earned 450,000 taxable income. His wife also eared pio, taxable income. Which ts true? 1009 There will be no aggregate tax due for the spouses, ‘The husband pays tax while the wife is exempt, & The wife pays the tax while the husband is exempt. d. Both spouses will report tax due. 10. If the husband Is employed with P 700,000 taxable income while his wi unemployed, he shall will be actually subject to tax on 4 a. P700,000ofincome. —_c. P 350,000 of income. (B) P.450,000 of income, —_d. P 200,000 of income. 11. Which of the following scenario Wil tl require an-adustment return from the employee even if the employers correctly withheld the tax on their compensation payments? a. Employee has concurrent employment b, Employees had successive employees during the year The employee earned income from other sources @) Allofthese 12. An employee who earned income from gther sources shall use which annual cerum? \@/ Form 170 © Form 1701 b Forri701 Form 1702 13. Which is a source of tax credit against the tax due under For a. Form 2316 17010 9 9 b. Form 2307 All of these 14. Which is a tax credit against the tax due under Form 1700? @) Form 2316 ©.1701Q — b¢ Form 2307 4. All of these 15. The first quarter income tax return is due a. April 15 of the same year b. April 25 of the same year ) May 15 of the same year a May 25 of the same year 622rete? 44 - Regular Income Taxation: Individuals a snethird quarter income tax return is due 16. TH gust 15 of the same year & “August 25 of the same year fc) Novembel / November 25 of the same year 7, Which is incorrect regarding the 8% optional income tax? 17, WA ¢substitutes the regular income tax and the 3% percentage tax. The 8% income tax option is irrevocable for the year its made. o ay be opted to if the taxpayer claimed optional standard deductign. © fay be used even ifthe taxpayer is also an employee, 4g, Which will not be included in the tax basis of the 8% income tax? a, Gross sales (c,Gross income from operation p. Gross receipts ‘d. Other gross income subject to regular tax 18, Which is an item of income subject to regular tax? a, Dividend income "¢,Gain on sale of domestic stocks b. Royalty income (Gain on sale of equipment 20, Who is natallowed the option to be taxed at 8%? (a) Compensation income earner ‘b. Business income earner c. Professional income earner d. Mixed income earner 21) Statement 1: There is no need to file a consolidated return if the withholding tax on compensation and the expanded withholding tax is correctly withheld. hho is deriving income from a sole customer need } Statement 2: A businessman w! not file a consolidated return if the customer correctly withheld any expanded withholding tax. a. True; True c.False; True b, True; False (aFalse; False { Multiple Choice: Problems - Part 1 1. Trixie’s business uses a fiscal year accounting period starting July 1 and ending June 30 for internal reporting. Her business reported the following quarterly net income on a fiscal year basis: | | [FISCAL YEAR 2022-2023 | 2023-2024 | 1* Quarter (July 1 to September 30) P.190,000 210,000 24 Quarter (October 1 to December 31) 220,000 |_ 7 250,000 3% Quarter (1/1/2023 - 3/31/2024) = 180,000 4 Quarter (4/1/2023 - 6/30/2024) = 200,000 | 623¥ Chapter 14 - Regular Income Taxation: Individuals = Compute the taxable net income to be reported on April 15, 20247 a. P790,000 840,000 b. P810,000 P 850,000 Jerson, a resident citizen, had the following income: Compensation income P 280,000 ~” - Rental income 50,000 ~ 4100,000 ~ Royalties - books 32,000 25,000 ” Domestic dividends 9,000 - Foreign dividends = 40,000 ~ - Compute his taxable income assuming she is a resident citizen, a. P330,000 ©P 495,000 b. 371,000 . P'536,000 Compute his taxable income assuming she is a resident alien. P 330,000 c.P-495,000 ae04 OE 371,000 4. P 536,000 ° Henry Sy, a supervisor, received the following employee benefits in 2023: Salaries, net of mandatory and exempt benefits P 4,000,000. ~ Stock bonus 800,000 ~ Director's fees 200,000 ~ Car designated for the use of Henry 7 2,500,000 ~ House and lot, transferred in the name Henry 5,000,000 » Compute the taxable income of Henry. eof ate a. P12,500,000 (OP5,000,000 “Io b. P-7,500,000 . P 4,800,000 1 In the immediately preceding problem, compute the fringe benefit tax for the year. a. P 1,346,153, OP 2,826,923) ity b. P.2,692,308 d.P 4,038,462 ~ The following relate to the net income of the firm of Mr. Oda: Professional fees P 600,000 quek Long-term capital gain y Short-term capital gain ts ug woe Ordinary gain 20,000 94 2k Long-term capital loss 16; (90,000) #° Short-term capital loss 30,000) Ordinary loss 40,000) ~ ky Other business expenses aa oon) © “wh Net income P__385,000 aqoF 624 ee — |- oe oe 4- Regular Income Taxation: Individuals cane? 4k — 10 wok 7 OF npute his taxable income, Qeont Com, 385,000 cP 410,000 6 p 390,000 .P 435,000 4, shown below is the summarized result of operations of Mr. Chiz Mozo’s business: sales P 900,000 ost of sales “300.000 Gross profit P 600,000 ook other deductible expenses 100,000 ook) Contributions expenses: Government priority project 50,000 (UF) -gpentl, Non-accredited non-profit institution 55,000 or) ie Foreign foundation 25,000 Net income P370,000 our compute his taxable income. 4 P-400,000 .P 420,000 P 405,000 d.P 450,000 7 &, During the year, Celeen received compensation income of P4S5,00{ after P15,000 withholding tax on compensation. Compute her income tax still due. a P 48,750 c. P 28,750 45 yyoowd - yovF ¥ (BP 18.500 .P 33,500 = gov 710% We 4, AFilipino citizen has P400,000 Philippine income and P300,000 foreign income. He paid P55,000 income taxes abroad. Compute the allowable tax credit for the income taxes paid abroad. _ Youd 4 Heme = BOO" “UO = pure a PO cP 45,000 b. 40,000 4. P55,000 4 \US ome oT yN tt? wor ee 10. Inthe preceding problem, what is the tax credit if the taxpayer was a non-resident citizen or a resident alien? a) PO c. P45,000 b. P-40,000 d.P'55,000 Multiple Choice: Problems - Part 2 |. An individual taxpayer recorded sales of P 2,500,000, cost of sales of P 1,000,000 and expenses of P700,000. He is also a partner in various partnership and received the following share in their net income: General professional Business 5 aainecahia hare in net income 200,000 P.400,000 | 625 | zz irr Ss Chapter 14 - Regular Income Taxation: Individuals Compute the income tax due if opted to itemized deduction. a. P310,000 GP 152,500 b. P250,000 d. P 130,000 Compute the income tax due if opted to the 8% optional income tax, a. P216,000 ( 196,000 b. P200,000 d. P 180,000 Karen Kaled received the following income from her employment in 2024: Gross salaries P 400,000 Deductions for: Y - $ss P 10,000 - PhilHealth 8,000 % - Pag-lbig 7,000 - Union dues 2,000 ~ + Withholding tax 67,400 - Loans repayment 50,000 Tardiness and absences —115.000) ~ Net pay 2.240.600 Compute Karen Kaled’s taxable compensation income. a. P240,600 @©P 358,000 b. P.290,600 4. P 400,000 Magdalene made the following computations of her annual financial savings from | employment, her sole source of income: Salaries, net of P59,000 withholding tax and P 12,000 mandatory payroll deductions —_-P 321,000 Expenses: - - Load expenses P 10,000 Medical expenses 8,000 - _ Transportation expenses 25,000 - Food, rent & utilities 100,000 Bank loan repayments 20,000 Miscellaneous expenses 15,000 Net savings for 2023 B143,000 What is Magdalene’s taxable compensation income in 2024? a. P 280,000 CP 380,000 b. P321,000 d.P 392,000 626| a Regular Income Taxation: Individuals ponte” ig resented the following schedule of income in 2024: wr Roger P fees, net of 5% withholding tax P 617,500 seri gs from a domestic corporation 20,000 one income from bank 10,000 nt es! rece utilities expenses P 30,000 — staff salaries 120,000 ~ ent & miscellaneous expenses 80,000 uition fees of 5 dependent children 100,000 "personal medical expenses 15,000 Net business income 2297,500 ‘total deductible expense against gross income is a PO .P 330,000 6 230,000 d. P 345,000 ‘ & Compute Roger's taxable net income. 19a J arve - 23 ok a, P305,000 c. P 387,500 a b. P320,000 yp 420,000 | 1, Compute the tax still due, a, 26,500 payable er P 6,000 refundable 5, P 18,500 refundable “d. P 2,500 payable 25 3 2 Geo | 4 Compute the tax still due if Mr. Roger opted to the 8% optional tax. a, P31,800 payable ¢.P 4,400 refundable p. 32,000 payable dP 500 refundable 4 Clyde Jerik, a self-employed employee with ten dependent children, had the following items of income and expenses in 2024: Sales P 900,000 Less: Cost of sales — 400.000 Gross profit P 500,000 hy Interest income, net of 20% final tax 16,000 '* / 4 Interest income from clients notes 12,000 Expenses: Salaries expense P 100,000 » Depreciation expense 15,000 | | Rent & other expenses 50,000 ~ Interest expense —30,000 ) Net Income 2.333000 627{ Chapter 14 - Regular Income Taxation: Individuals Compute the deductible business expense. a. P 165,000 cP 189,720 @®y P188,400 @p 191,000 10. Clyde Jerik shall reporta taxable income of a. P322,280 321,000 b. P324,000 P311,600 11. Compute the taxable income if Clyde Jerik opted to use the deduction ® P552,000 c.P 540,000 b. P547,200 d. P 307,200 optional staning 12. Compute the income tax due if Clyde Jerik opted to use the 8% optional incong tax. a. P72,960 P 52,960 b. P72,000 iP 52,000 13. An individual income taxpayer had the following income in 2023: Compensation income P 820,000 Mandatory payroll deductions 20,000 Gross receipts 1,800,000 + Direct cost of services 500,000 Expenses 300,000 Other income subject to regular tax 100,000 + Other income subject to final tax 200,000 Withholding tax on compensation 130,000 Expanded withholding tax on receipts 14,000 Estimated tax payments made 94,000 Compute the income tax still due if the taxpayer opted to the itemized deduction. a. P351,000 cP 139,500 b. P322,000 /P 192,000 14. Compute the income tax still due if the taxpayer opted to the optional standard deduction. a. 351,000 (©P 159,500 b. P246,000 d. P 192,000 15. Compute the tax still due if the taxpayer opted to the 8% optional income tax. a. P 44,000 cP 24000 b. P-40,000 4.P 16,500 Wa WAL 628