Ch5: Items and Concept of Income

Question 1

INCOME (for tax purposes)

Answer 1

the amount of MONEY coming to a PERSON or CORPORATION within a specified time whether as payment for services, interest, or profits from investment.

Question 2

• income reduced by exclusions; income from taxable sources

Answer 2

gross income

Question 3

refers to the PERTINENT items or gross income specified in the Code, less deductions, if any, authorized for such types of income by the Code or other special laws; the amount of income that is taxed.

Answer 3

taxable income

Question 4

Gross income under the NIRC

Answer 4

1. Service compensation (fees, salaries, wages, commissions. etc.)
2. from the conduct of TRADE or BUS. or the exercise of a PROFESSION
3. from dealings in PROPERTY
4. Interests
5. Rents
6. Royalties
7. Dividends
8. Annuities
9. Prizes and winnings
10. Pensions
11. Partner’s distributive share from the net income of GPP.

Question 5

is referred to as tax on all yearly profits arising from PROPERTY, PROFESSIONS, TRADES or offices, or as a tax on a person’s INCOME, emoluments, profits and the like. ( a tax is based on income, gorss or net)

Answer 5

Income tax

Question 6

Income tax classifications (GD’s NE)

Answer 6

1. national tax
2. excise tax
3. Direct tax
4. General tax

Question 7

Classification of income tax payers (TECI)

Answer 7

1. INDIVIDUAL
2. CORPORATION (inc. p’ship, joint-stock co. associations, insurance co. ) EXPN: general profesional partnersihp & joint venture or consortium formed for the purpose od contrustction projs. and the like)
3. ESTATE (under judicial settlement, otws: not subject to income tax.
4. TRUST

Question 8

means all income not expressly excluded from the class of taxable income, irrespective of the voluntary or involuntary action of the taxpayer in producing the income. Hence, illegal activities inc.

Answer 8

“income from whatever source derived”

Question 9

Classifications of gross income

Answer 9

1. COMPENSATION income
2. GROSS income from BUS or PROFFES’N
3. PASSIVE income
4. OTHER sources of income.

Question 10

means all remuneration for services performed by an employee for his employer under an employer-employee relationship.

Answer 10

“compensation”

Question 11

How is “compensation in kind” measured?

a. medium other than money
b. for service rendered and in the absence of it
c. corporat’n>STOCKS>employees

Answer 11

1. Medium other than money: FMV OF THE THING - amount to be included as “compensation income”
2. if at a STIPULATED price - - inthe absence of contrary: price will be presumed to be the FMV of the REMUNERATION RECEIVED
3. corporation stocks: FMV of the stock at the time the SERVICES WERE RENDERED.

Question 12

Compensation paid in promissory note measurement

Answer 12

FMV at the time of the receipt

Question 13

Compensation paid in promissory note with discounts

Answer 13

FMV is the fair discounted value.

Question 14

TIPS AND GRATUITIES paid directly to an employee by a customer which are not accounted for by the employee to the employer are considered as

Answer 14

TAXABLE INCOME of the employee but not subject to withholding tax.

Question 15

Conditions which subject the advance or reimbursements as NOT a “compensation”

Answer 15

If they are:

1. ORDINARY and NECESSARY EXPENSES
2. Paid/incurred by the employee in the PURSUIT of the TRADE/BUS/PROFESSION
3. employee is required to account/LIQUIDATE the foregoing expenses.

Question 16

the EXCESS of advances made over actual expenses shall constitute ____if such amount is NOT RETURNED to the employer

Answer 16

TAXABLE INCOME

Question 17

reasonable amounts of reimbursement/advances for travelling/entertainment expnses that are PRE-COMPUTED ona daily bais ans are paid to an employee which he is on an assignment or suity need ________

Answer 17

NOT be suvbject to the requirement of substatntiation and to withholding.

Question 18

Representation and Transportation Allowance (RATA) granted to public officers and employees under the General Appropriations Act and (PERA) Personnel Economic Relief Allowance granted to gov’t personnel are ___

Answer 18

NON-TAXABLE compensation income

Question 19

Additional Compensation Allowance (AVA) granted and paid to all officials and emploees of the NGAs inclusing SUCs , GOCs, GFIs and LGUs is part of ____

Answer 19

OTHER BENEFITS not subject to income tax up to 90,000

Question 20

Vacation allowances or sick leave credits __.

Salary of an employee on vacation or sick leave

Answer 20

constitute compensation.

constitute compensation.

Question 21

Monetized value of unutilized vacation leave credits of 10 days or less paid to employyeed furing the year are ____

Answer 21

not subject to income tax and to withholding tax becz they are considered as DE MINIMIS BENEFITS (which are exempt from income tax)

Question 22

Forgiveness of indebtedness: on account of debtor’s services to the creditor, _______

Answer 22

the same is TAXABLE income to the debtor (Ferdie & Mel)

Question 23

Forgiveness of indebtedness: if no services were rendered but the creditor simply condones the debt.

Answer 23

it is a taxable gift not taxable income

Question 24

if the creditor is a corportaion and a debtor is a stockholder, the forgiveness of indebness has the ___

Answer 24

the effectof a payment of a dividend

Question 25

If the creditor is a stockholder and the debtor is the corporation - the forgiveness of indebtedness shall be ______

Answer 25

considered as an additional investment

Question 26

Are those which remunerate past services whi do not constitute demandable debts; the motivating cause is gratitude, acknowledggement of a debt, or a desire to compensate and tnot the liberalit of the donor.

Answer 26

Remuneratory decisions - income subject to income tax.

Question 27

there is tax benefit when

Answer 27

when the taxpayer realized a tax reduction of the income tax due on account of said bad debt deduction from gross income. Interest on the amount recovered is a taxable income and is not covered by the tax benefit rule.

Question 28

When is a tax refundable?

Answer 28

if the tax was previously deducted as an EXPENSE in computing the tax during the previous year. It shall be included as part of the GROSS INCOME in the year of receipt to the extent of the income tax benefit of said deduction.

Question 29

Taxes which are not deductible from gross income include_______

Answer 29

income tax, estate tax, donor’s tax, special assessments, value-added tax.

Question 30

If the tax is an indirect tax, who is the proper party to question or seek a refund of an indirect tax?

Answer 30

STATUTORY TAXPAYER, the person on whon the tax is imposed by law and who paid the same even if he shifts the burden thereof to another.

Question 31

It includes earnings, lawfully or unlawfully acquired, without consensual recognition, express or implied, of an obligation to repay and without restriction as to their disposition.

Answer 31

Income

Question 32

Fixed or variable transportation, representation, and other allowances received by a public or private office or employee, in addition to the regular compensation fixed for his position or office is ____

Answer 32

taxable as compensation income.