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Chapter 7

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Chapter 7

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Fely Maata
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Chapter 7 - Introduction to Regular income Tax CHAPTER 7 INTRODUCTION TO REGULAR INCOME TAX chapter Overview and Objectives: This chapter provides an overview of the regular income tax intended to acquaint readers with the nature and tax structures of the regular income tax. It also discusses regular tax reporting and income tax determination. Subsequent chapters deal with specific aspects of the regular income tax. After this chapter, readers are expected to demonstrate knowledge on the following: The scope of regular income and its tax model The features of the regular income tax ‘The concept of inclusion and exclusions from gross income ‘The types of gross income subject to regular tax ‘The concept of deduction and personal exemption ‘The concept of deductions compared to personal exemptions Measurement of gross income from employment and business and the treatment of other income 8 The concept of operating income or revenue and the difference in tax presentation of individuals and corporate taxpayers 9. The procedural computation of taxable income of corporations and different individual taxpayers 10. The computation of the regular tax for individuals and corporations 11, The deadline of the regular tax returns 12. Applicability of the quarterly filing and its deadlines None ene CHARACTERISTICS OF THE REGULAR INCOME TAX 4. General in coverage 2. Anetincome tax 3. Anannual tax 4. Creditable withholding tax 5. Progressive or proportional tax General coverage The regular income tax applies to all items of income except those that are subject to final tax, capital gains tax, and special tax regimes. Net income taxation ‘The regular tax is an imposition on residual profits or gains after deductions for expenses and personal exemptions allowable by law. 221 Chapter 7 - Introduction to Regular Income T= oo incor ‘applies on yearly profits or galt The reel come tao ge cong method doped by pe el ee a men Fe seep: redabe withholding tne State cont re bie to ced a age are vances croton a deh oer shholding tax (CWT). The be deducted against repct rrogesiveor prope imposes fat oF proporuonal tax of 30% upon the taxable income of corpor rape har he revigion ofthe corporate income tax inthe second package ofthe TRAIN Law proposes a 25% corporate income tax, ‘THE REGULAR INCOME TAX MODEL Pou 2x Pos Gross income consists ofthe major topics: Exclusions of gross income - list of income exempt to regular income tax Inclusions in gross income lst of income subject to regular income tax ‘Special topics ~ covers income that are either exclusion or inclusion depending fon certain circumstances, such as: Gross income - inclusions Less: Allowable deductions ‘Taxable income Dealings in properties GROSS INCOME Gross income constitutes all items of income that are neither excluded in gross income nor subjected to final tax or capital gains tax. The items of gross income subject to the regular income tax will be extensively discussed in Chapter 9. Exclusions fr These pertain income tax. These Gross income ms of income that are excluded: hence. exempt from regular Ibe discussed in detail in Chapter 8, Excluded income vs. exemptincome Excluded income is also exempt income. Excluded income are those listed by the NIRC as exempt income from regular tax The term exempt income includes alt income exempt from income tax whether final tax, capital gains tax or regular m2 chapter 7 - Introducton to Regular income Tax income tax. Exclusions from gross income are listed in the nption income may be provided by the NRCor spec laws. NN Examen fom ALLOWABLE DEDUCTIONS Alone dedictions, oF simaly “deductions” are expenses of the conduct of usiness oF exercise of profession. They are commonly known as. business expenses » “ “The book sub-divided the vast topic of deductions as follows: ‘of Deductions - Chapter 13 able Itemized Deductions - Chapter 13-8 rable Remized Deductions & Net Operating Loss Carry-over - 4. The Standard Optional Deductions (OSD) - Chapter 13-C For individual taxpayers there is a need to note the diference between business ‘expenses and personal expenses. Personal expenses or those that an individual ‘pends that are not connected to furtherance, maintenance or development of his trade, business or profession are non-deductible against gross income. Individuals that are not engage in business cannot claim deductions from gross income. Consequently, individuals are classified as follows: 1. Pure compensation income earner 2. Pure business or professional income earner 3. Mixed income earner - an individual earning both compensation and business oF professional income Note on Person: Previously, the taxpayers. The amount of personal exemption depends on the number of dependents who are supported by the taxpayer. Personal exemption is in lieu of the personal, living, and family expenses of an individual taxpayer. Personal exemption Is repealed effective January 1,2018. In an effort the simply the tax system, the TRAIN law simply exernpts P250,000 annual income of the individual income taxpayer from regular income tax. This ‘Sxemption fs embedded in the income tax table for individual taxpayers. As such, there is no need to separately deduct personal exemption. xemption provides for personal exemption of income of individual [DETERMINATION OF TAXABLE INCOME ‘The taxable income of individuals taxpayers 1s computed using the Classification {and Globalization rule. 23 ‘chapter 7 -noducbon to Regular income T= ‘Classification Rule Gross income is first classified into: ‘2. Compensation income 'b. Business or professional income m Business income Corea me arses, orn an_employer employee Telatnship ts characterized by 2 power to retench giving the Service 9 terminate he arrangement when he is losing n business. B Sere a ertong of goods or rendering of services f0r a profit. Im seryet siagemeres where the purchaser af the service BAS NO POWET to retrench te income realized thereon isa busines Income. ‘Treatment of other income Income that are nether compensation income nor business income such as those possive income are simply classified as “other taxable income” and are added ty gross income from business and profession. Allowable deductions Business expenses are deducted against gross income from business or profession. No deduction is allowed against compensation income since personal expenses of individuals for cost of living are deemed to be included in the 250,000 blanket exemption inthe income tax table Other income which is neither compensation nor business or professional income 1s simply added to total gross income from business ot pro ‘operating income” If the taxpayer has no business or profes ‘same shall be added to taxable compensation income as “other ‘Taxable income of pure compensation income earner ‘The taxable compensation income of employees is computed as follows: Gross compensation income less: Non-taxable compensation ‘Taxable compensation income Non-toxable compensation includes legalh * legally mandated salary deductions and items of compensation income that are exempted by law, contracts, or treaty from {income taxation. The in chapter 1g. he dae tax rules on compensation income wil be discussed 24 ‘Chapter 7 - Introduction to Regular Income Tax. ‘Taxable income of pure business or professional income earner ‘The taxable net mcome of businessmen or professionals 1s computed as follows: Dusiness/profession P 200,00 —— mms Pome x as Eos rome earner from both sources is simply globalized or \come oF net loss when deductions exceeds gross income from business or profession shall not be offset against taxable compensation income because deductions are expenses of business or profession and are properly deductible only against gross income thereto whereas no expense is deductible against taxable compensation income, dividual tacome taxpayer Case | Case2 | Case3 | Cased | |? 300 008) 300,000 | P 300000 30,000 30,000 | 30.000 | #.400,000 | 400.000 | 200,000 "250.000 | 250,000 [250,000 | 20900. — 20,000 [— 20,000 {20,000 ‘Taxable income shall be determined in each ofthe above case as follows: Case 1: A compensation earner with other income Gross compensation income Less: Non-taxable compensation ‘Taxable compensation income ‘Add: Other gross income Taxable income P 300,000 30.000 P 270,000 70.090 ‘B290.000 Case 2:A business income earner with other income Gross business income ‘Add: Other gross income ‘Total gross income Less: Allowable deductions Net income P 400,000 20.000 420,000 250.000 E120.000 2S Chapter 7 -nreducton to Regular Income T= ith ocher Income ‘P 300,000 30.000 P 270000 Case 3: Amixed income earner wit Gross compensation income Less: Non-taxable compensation ‘Taxable compensation income P 400,000 20.000 P 420,000 250.000 Gross business income Other gross income Tota gross income Less: Deductions ‘Taxable net income ‘Taxable Income 120.009 B.s40.000 Case 4: Mixed income earner - with net loss on business or profession Gross compensation income P 300,000 Less: Non-taxable compensation ‘Taxable compensation income P 270,000 Gross business income ‘Add: Other gross income Total gross income Less: Deductions not clearly bbe made in accordance with such er, clearly reflects the income, 26 ‘chapler 7-Introducton to Regular income Tax Inshort. Determination of Gross Income from Business or Profession Business selling goods ‘rom business on the sale of goods is computed as: Po xxx — as Peas he acquisition cost of the goods sold for merchandising or f the goods sold mn the case of manufacturing. Cost of sale of a trading business or by the Under the perpetual system, the cost of goods sold is determined through bar Cost of sales of a manufacturing business ‘The cost of goods sold of a manufacturing business is computed in almost the same way with those of a trading inventories of a manufacturing bust discussed in Chapter 13. “Chapter 7 = Introduction to Reguar income Tex ‘Chapter 7 - Introduction to Regular income Tax Mtustration on towing data during the yea": ing auditor had the’ ‘Ataxpayer had the following, pissin i auditor had the following come and expenses during the year Sonics 100,000 om ales discounts 100,000 Sales etre 200.000 1400,000 Beginning inventory 2.500.000 20.000 0 ‘returns and allowances ope 250,000 ‘ 420,000 —_ 800,000 0,000 . RODS issued to audit staff 50,000 les shall be computed as follows: on office properties 20.000 Beginning inventory oye 400,000 Net purchases (P2.5M ~ P1SOK) : 50,000 fre ‘odors ? 3.150000 100,000 ‘Total goods avilable for sale 3 lace bate evesnory 800.000 ‘The cost of services shall include only those directly incurred or related gross revenue Costof sales B-2350.000 from the rendition of services such as “The business gross income shall be computed a fellows: P 1,400,000 12,000 Sales (P4M ~ PLOOK - P200K) P 3,700,000 anon Less: Cost of sales —2Ascon0 280.000 Gross income 24330,000 50.000 Eauz000 Business selling services ‘The gross income from sale of services or exercise of a profession is measured as “The gross income shall be computed as follows: follows: Revenue P 4,500,000, Less: Cost of services 2112000 Grossincome Ete.o00 INCOME TAX REPORTING FORMAT Service provers using the accrual basis shall eport ther gross receipts. 5s These two are separately presented under the deduction category “Regular allowable itemized deductions” 28 ‘Chapter 7 nroducton to Reguiar Income TaX distinguished is sansreemeareipaarde ttl, yee oy Reve 3 gener ot the business. Sales pertains fee ang rm he panacea of He OER, Se rei ee ee reer om a of os acon em tesa 88 Fever are commonly used to denote the income ing rerenen ‘The terms ste or fes or simply revenes Er tra recepts is used to denote the OT taxpayer xing te acon as Income a expayers ing the cash bass fevenue vs. gross income Revenue vs gross move pearing to the ttl return ina tansaction which includes the return of capital and the return on capital, Gross income is a net ‘concept pertaining tthe return on capital in a transaction Gross income is net of the cost of sales or cost of services. Other taxable income from operations Other tarable income from operations includes revenues or receipts from incidental or secondary operations aside from the primary operations, a wien pi vs bone ob i Acoli tt Soran pecrorioe ener etree Se alee Ae ae reer LT ail he pn oi iy ci iti. Tebelattiies Se cin has the receipts from passengers and baggage as ‘primary revenue, but may earn income from bus stop restaurants and washrooms as other operating revenues. Non-operating income ‘Non-operating income includes all other tems of gross income such as: 4. Gains from dealings in properties Being net of costs, these are gross income items rather than revenue. They are not part of “Sole/Kevenues/Receipts/Fees" but of “Non-operating income” individual taxpayers Dealings in properties pertain tothe sale, exchange and other disposition of Properties bythe taxpayer The rules on gains in dealing in properties nat 230 ‘chapter 7 - Introduction to Regular Income Tax covered by the capital gains tax willbe discussed in Chapter 12 under regular {income taxation. 2, Income distribution from a gen trust or estate, or from an exemp Income dist income, hence 3. Casual active income ‘This includes acuve income from isolated or one-time transactions such 35 casual carpentry income of a person nat engaged in carpentry business. Any expense on casual transactions is set off with the casual income. The net gain ‘oF income is a non-operating income. Passive income not subject to final tax ‘income not connected with the business ofthe taxpayer final tax such ‘onadvances to employees and from foreign corporations. Similar to casual income, these do not from the regular business operations, hence, classified as non-operating income, Professional partnership, taxable ‘venture are not revenue, but stems of gross -operating income of individuals tMustration {An individual taxpayer who is using the accrual wn his manufacturing business ling year: Sales, net of returns, and discounts P 4.000.000 Cost of sales 100,000, Dividend income, net of fina tax 36,000 Business expenses 1,600,000 Gain on sale of old equipment 100,000 Sale of scrap metals 200,000 Interest income on employee advances 435,000 Gain on sale of domestic stocks directly toa buyer 10,000 ‘The business income of the individual will be presented in the income tax return as 4,000,000 200.000 P 4200000 —Lag0.000 Gross income trom Business/Profession P 2,400,000 ‘Add: Non-operating income Gain on sale of equipment P 100,000 Interest income on employee advances 45000 __14s.000 Total Gross Income 2545.00 231 chapter 7 -Inoducton to Regular income Tax ‘Total Gross income P 2,545,000 otal Gross . Total oss ble deductions (Busines Pen ) Netincome like the dividends and capi neorne subject t0 FRU [Motes income items subject te final merSccuded in the computznon of the Bross Renorting Format or Cormarate TAXPAvErS P somxer cevenves/Receipts/Fees net saesevees/ ee Gross income from Pwo ‘ad ter enable neon me ‘Total gross income roo Lass Alowable deductions a Pas ote For corporate taxpayers revenues of ects fom secondary OF Iniden ny Revenses/Recipes/ees” ‘operations wil be included under the cl Other taxable income not subject to fal ms o sme whether or not arising from the from dealings in properties, income and other passive income not subject to Mlustration Assuming the same data in corporation, the business incor the previous illustration except that the taxpayer is be reported as follows: Wet Sates/Revenues/Receipts/Fees (P4M + PO.2M) P 4,200,000 Less: Cost of sales —{g00.000 P 2,400,000 Total — Ast ene oat P 2,545,000 Less: Allowable deductions (Business expenses) 800.000 245.000 Netincome fence in. presentation between individuals and corporations is i Stndar ection (05D) The bass ote OSD OF (otal revenues or receipts from operations while the ns 1s on total gross income subject to regular from the regular business operations. fncome tax whether or not they a 232 chapter 7 -Introducton to Regular Income Tax pparate bookkeeping for business and professional practice Individual taxpa} ged yess or exercise of a wsactions from business ‘of the individual taxpayer must not be 5 or professional practice. ‘this is important in the tax treatmer cannot be deducted again: allowable perso’ the actual personal, family and cost [TYPES OF REGULAR INCOME TAX 1. Individual income tax 7300.00 ve P2,000,000 ‘Above P8,000,000 Noe: Eumineesarenaereured tomar isa tole for Board Exam purposes sep ecogressive (ax covers all individuals inctudingtarable estates and trusts ‘except NRA NETB which is subject to 25% final taxon gross income Illustration 1: Income Tax Computation ‘A resident cauzen with has 2 compensation Income of 1,250,000 within she Philippines and P150,000 from abroad “The income tax due shall be computed 25 follows: 233 ‘cnaptet 7 - Introduction to Regular income Tax ‘The 8% income for two taxes whi ‘of tis tax system wil be exter e-tume compliance Wg and payments. Details 4 fly by bracket marginal rate ea income ax v6 10% on taxable income, The foreign corporation and FCDU Mustration Mlustration 2: Income Tax Computation ‘A corporation has a net income of P1,200,000 in the Philippines and P800,000 from ‘Arresdent alien has a net business net Income of P2,200,000 in the Philippines ang abroad, " ene 1,250,000 from abroad corporation Is 2 domestic corporation, the income tax due shall be ‘The income tax due shall be computed as follows: computed as follows: Tatu ‘Taxable income (world) P 2,000,000 ‘Taxable compensation income P 2,200,000 Less: Lower lim ofthe income bracket Income tax due Ecos & wherethe table income qualifies. — _2,000000 P 490,000 Fewcess P 200,000 [Assuming the corporation is a resident foreign corporation, the income tax due shall P 1,200,000 ite 2 Sano09 3 x wxable on glbal income while resident foreign Corporation is taxable on Philippine ncome. Note: Rec thata resident sin is tacable only on Phlipioe income ‘The Optional 8% Income Tax computed as 2% of total i ced an optional income tax for self-employed and or tae orp os CN OE losing in business, they are 1S-B, Spectal Corporations ‘The 896 income tax shal bein lieu of the: a. Progressive income tax, computed under individual tax table; and 'b. 3% percentage busines: tax on sales or receipts. re those enjoying fower tax rates but not 096, such as such wn-proRt hospials and PEZA or TIEZA-repstered enterprises. corporations will be discussed thoroughly in Chapter 15-A. 2S 238 chapter 7 -voducton to Regu income TA Exempt Corporations enjoying 0% tax rate with no tax dues 5 Exempt corporations are th uch fempt corporations sions with no taxable int ® 5, non-profit organizat le in government agencies, non raft ie Board of Investments (BOI) eng ‘cooperatives, and those reg! sion income tax holiday or TH. INCOME TAX RETURNS Inaivduat income TaxRetuNs (iasiteturmForm | Tndildval taxpayers ~~ Form 1700 Purely employ Form 17014 Purely in business or profess! opting to the 89609 Form TOL — [Mid income [— ‘Corporate inc Corporations siyec nk It should be noted that exempt corporations are required to report thei they do not have taxat 1B compliance of exempt corporanon tax obligations and to provide for 3 ‘mechanism to identify income earned by third parties. Exempt corporations with gross income subject to the regular corporate income tax or special rate shall file BIR Form 1702-MX, of filing the income tax return me tax return s due for filing on the 15% day of the fourth month taxable year ofthe taxpayer. The income tax due shall be paid upon Hence, an aunt for P10049 shall be entered inthe An amount of P100.50 shall be rounded to P101, income tax return 35 FOR 236 “chapter 7 - Introduction to Regular income Tax Required Attachment in the Annual Income Tax Return Independent CPA - if annual sales, earnings, receipts or output for taxpayers wit es per tax r egime form and financial statements (FS) showing: services 1Rand other taxable income ons (i taxpayer did not avail of OSD) formation prescribed to be of management responsi tax payment and the return previously fled celef/Enuitlement issued by the concerned Investment, INCOME TAX RETURN juals engaged in business and those engaged in the pract e required to file three quarterly returns aside from the Annual consolidated income tax return Individual taxpayers engaged in business or practice of profession shall file thei quarterly income tax returns using BIR Form 1701Q Corporations shall file thear quarterly income tax returns using BIR Form 17020 12x payments, These quarterly tax payments Taxpayers make est ‘to the annual consolidated income tax due are claimed as tax creé of the taxpayer. Deadline of Quarterly Income Tax Returns ‘Quarterly Income Tax Returns chapter 7-Invoducton to Regular I9com Tex ssofindwiduals engaged in business or profes, ion = arter tax recurs atte er first three quarter whereas the quarter due 45 days from the end of the ve due 45 ye Feaporaeaspayesare due 60 Gays from the end ofthe guano requency of Reporting Per Taxpayer TYPE ee ————"] ocqueney of Wan Babs Taxpayer _____| Freaueney of Tax Reporting Tndiviuals Pure compensation income earner. in business or profession ‘Arawal Purely engage: Mixed income carne ‘Corporations “Quarterly & Annual ‘The substituted fling system for employees aan erpensidon income earners may be relieved from the obligation tg they have no taxable income from other sour, ee ener ‘other from their lone employer. i withhold the income tax of the employer, _gstem wherein the employer shall ‘compensation. aro required ithe employee bas other taxable income or has more employer, either concurrent or successive, during the year. ‘omen 238 chapter 7-Inroducbon to Regular Income Tax (HAPTER 7: SELF-TEST EXERCISES piscussion Questions Diserrecuss the scope of the regular income tax especially on passive income and acteristics ofthe regular income tax. in gross income? ble deductions from personal exemption. Pommonstrate the computation of the gross income from employment and the igross income from business or exercise of profession ne Frow is cost of goods sold determined? ‘What are included in cost of services? iat arsmposes the compensation income of a rank and file employee and 2 igerial and supervisory employee? ion of the ¢ uals and corporate taxpayers? "from non-operating income. exe 9, How does the tax pr revenue from sales, fees, and receipt. how the taxable income ofthe Following is determined: jonal income earner business or prot ‘imcome earner tment of net loss from business or exercise of profession. idlines of the quarterly regular income tax for individu b. Purely compensation ea © é 13, Disc 14, What are the dea corporations? als and ‘True or False 1 1. There are two types of regular inco corporations and progressive co 2, NRA-NETBs and NRFCs are also su 3. All taxpayers are subject to final ‘4. Taxable income is synonymous to net income, S._ For all taxpayers, table income means the Subject to capital garns tax and final tac essa gular income tas ‘expenses from their employment as deductions ‘inal tax and capital gains tax are excluded in oportional income tax for als ygome tk, items of gross income not fable deductions. ‘compens : gross income subject ross income subject to regular 150,000 income tax exemp! ersonal and business expen: 10. Non-taxable compensation are items of compensa gross income. ax, Yor individuals is designed to be in lieu of sion that are excluded against 239 ‘chapia 7 Inoducton to Regular Income T= ‘True or False 2 1 come is computed 25 8F9S5 COMPensation Igy me. . the quarterly income tax return 43, Business expenses can be deducted against all types of by multiplying their gross income, come tax return of corporations using the cal ixed for individual taxpayers. il 10. Every 3 taxpay from income tax on compensation up 250,000 annually but the same exemption does not apply to business income, ‘Multiple Choice - Theory: Part 1 regular income taxation. fringe benefit taxation. 2, Active income is subject to a regular tax. b. capital gains tax. Question 3 and 4 are based on the following: A Regulartax —B.Finaltax —_C.Capitalgains tax Which ofthe foregoing are passive incomes are subject to? a Aonly Both Aand B final tax, 4.any of these b Bony 4. Either AorB ‘4. Which ofthe foregoing are capital gains a Acnly c ‘Chapter 7 - Introducton to Regular income Tax ¢ corporate taxpayers only. 4 taxpayers engaged in business. «corporate taxpayers only 4 taxpayers engaged in business. ture of the regular income tax? Annual tax 4.Creditable withholding tax business only, ‘oportional regular income tax corporations only. engaged in business. ‘compensation earners only. d.both individuals and corporations. Fh of the following individual taxpayers is not subject to tax on taxable ¢.NRA.NETB b Residentalien Non-resident alien engaged in business 16, Which of the following corporate taxpayers is not subject to tax on taxable income? ‘2. Domestic corporation _«. Non b. Business parmership Resi mi wwe escent one enonemecorane mt i ign don rt erm ae — vm nen * ‘a Interest income from bank deposits eo i © inning rom he Philipines Feet Nenet income of general pefessional partnership income but is nevertheless subject to final income taxation? i 0c Merchandising income 4 Dividends from domestic corporations Deductions from gross income D._ Personal exemption ‘Which isnot considered in the determination of taxable income? a AandB cDonly %. CandD 4.BandD only of employees maybe sujet final al ring benefit? yes e Ranken le employee loyees dAand B — Yoon n prog ne? onincome by etal sore B Fatstomdberendenngotsernea 22 ‘chapter 7 -Introduchon to Regular Income Tax. Interest income from advances to employees @. Sale of serap ©.Gate recelpts of cockpits 4.Gate receipts of cinemas 9, The reporting classification of gross income into operating and non-operating 1s. unnecessary for ‘a Corporate taxpayers ._ Individual taxpayers Both Aand B Neither Anor B ‘oF supervisory employees and file employees ired to Me quarterly declaration of 2ome? is engaged in business jons and individuals engaged in business CChapler7- Invocton to Regular income TAF 13, Me Jones wishes to le his 2019 income Ax FeCuT. Toateldvenly hema gy greta on or bere, August 15,2020. November 15, 2020. 1A: An dal eaxayer mst Re come tr Fe. OF Che third quar 019 onor before a ap s,202, «.November 15,2020. B pngust 15,2019, d.Novernber 15,2019. ising ts income tax return for the quarter ending Februay 7019. The return must be fled on or before ‘2 April 18,2020 Apr 30,2019 Bb Angust 15,2019 d March 30,2019 116, Which ofthese taxpayers is required to file an income tax return? 2. Anemployee covered by the substituted filing system. income st . Ataxpayer deriving purely pas fen with respect to his compensation nt citzen who derives his entire incor from sources outside the 17. The taxable income of corporate taxpayers isthe a, netincone from business. 1b net income from business less personal exemption, taxable compensation income. taxable compensation income plus net income from business. 16, The taxable income ofa pure compensation income carner fs the 1a. net income from business less personal exemption. taxable compensation income plusnet income from business. taxable compensation income. 4. netincome from business. 19, Thetaxable income ofa 4 netincome from bus b._netincome from bus taxable compensation income. d._ taxable compensation income plus net income from business. sncome earners the less personal exemption. ‘a netincome from business. taxable compensation income taxable compensation income plus net income from business. net income from profession less personal exemption. Bes 2s Chapter 7 - Introduction to Regular Income Tax tements is incorrect with respect to the determination \dual taxpayers with other income? eof pure compensation earersis simply incuded n taxable me ofa professional Income earner fs included as part of non- operating income and treet The other income of 'd income earner is also treated as part of non luded in net income. ly ignored in the computation of taxable income. 22, Statement 1: Individuals with higher income are subject to higher tax rates. ‘Statement 2: Corporations with higher income are subject to higher tax rates. Which is correct regarding the regular income tax? 4, Stotement tenly ——¢ Both statements { and 2 24, Which is incorrect in the determination of the taxable income of Individual law. there is no instance where the compensation income of taxpayers could become zero. 1b Anet operating loss is deductible against taxable compensation income. ¢._ The tanable compensation income ts added to the net income from business 4. Personal exemption isno longer deductible against compensation income. ‘24, Statement 1: Corporations with the same net income may not have the same tax due. Statement 2: Individuals with the same net income may not have the same tax due. [Which statements incorrect regarding the rewslarincome tax? a. Statement «Both statements 1 and 2 b. Statement 2 None 25. A purely engaged in business individual taxpayer shal use a. BIRForm 17014 ¢.BIR Form 1700 b. BIR Form 1701 {BIR Form 1702, 26. BIR Form 1701 Is not intended for a Estate ‘c Pure professional income earner b. Trust Mixed income earner 27, BIR Form 1700 is intended for a. Trust ‘Pure compensation lacome earner b. Estate 4 Pure business or professional income earner 245, rrtuctan Rogue no TAS enacts shalt 2a horn bs Fr 170.MK ie 4 Form 17014 tna wzable income shall use ‘e Form 1702-MK 4 Form 17014 preferential special axrate shall use 30 Asoo which eau 1702-MX 1702-RT a fom a Farmi70IA only toa 30% income tax rate shall use : 3 ke efor UE MK ‘Mattiple Choice ~ Problems 1 45 Form 17014 irs Sancher Mira bad a gross taxable compensation income of P400,000 She a ean addtional 2,000 by investing her money i time deposits plus P3 oy sare nme from lending money toa frend. Compute her taxable income, a 7303000 1 F300,000 302,000 4.403.000 Mz Caveria had a business net income of P300,000. She also earned PSo5p semicon fom seling cellular cards and P12,000 dividends from a domes corporation. Compute her taxable income. 2 P300,000 ‘.P30S,000 312000 4.P317,000 Hr, Pamplona earned total gross Pamplona? a 490,000 «P500000 ». P460.000 4.P600,000 Mr. Monreal earned 2 gross compensation income of P200,00( 865 of P170,000 during ‘compensation income? a 2 30000

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