Chapter 7 Flashcards
What are the characteristics of regular income tax?
General in coverage
A net income tax
Creditable withholding tax
Annual Tax
Progressive or Proportional tax
Is regular income tax always a net income tax?
GR: Yes
XPTN: The optional 8% income tax where the gross income is used instead of net income
Who are required to file an income tax return and pay regular income tax?
- Individuals
A. RC
- Pure compensation income earners
- Business or professional income earners
- Mixed income earners
B. NRC (within)
C. Aliens (within) - Non-individuals
A. Domestic corporations (global)
B. Foreign corporations (within)
C. Partnerships
D. Estates and Trusts engaged in trade or business
Who are not required to file income tax return?
- Minimum wage earners
- Gross income not exceeding 250,000
- Compensation from one employer not exceeding 60,000
- Individual with income subjected to final withholding tax
- Pure compensation income earners qualified for substituted filing
This is an imposition on residual profits or gains after deduction for expenses of business or practice of profession.
Regular Tax
These are advanced taxes that must be deducted against regular income tax due in computing the tax still due to the government.
Creditable withholding tax
What kind of tax is imposed on individuals and on corporations? What percent is the tax?
Individuals - progressive
Corporations - proportional (25%)
This constitutes all items of income that are neither excluded in gross income nor subjected to final tax or capital gains tax.
Gross Income
These are expenses of the conduct of business or exercise of profession.
Allowable deductions
These are those expenses that an individual spends that are not connected to the furtherance, maintenance, or development of his trade, business, or profession.
Personal expenses
Can individuals who are not engaged in business claim deductions from gross income?
Generally, no.
What are the 3 types of individual taxpayers?
229
This income arises from employer-employee relationship.
Compensation Income
What are the classifications of gross income?
Compensation income
Business income
This income arises from selling of goods or rendering of services for a profit.
Business income
Is deduction against compensation allowed?
No
Are expenses related to the employment of individual taxpayers deductible against compensation income?
No it is considered a personal expenses
Write formula for purely compensation income earner
230
Write formula for purely business or professional income earners.
230
What rule is used in computing the taxable income of individual taxpayers?
Classification and Globalization ruleW
What does the globalization rule on mixed income earners say?
The income from both sources are totaled or globalized. Loss from business or professional income should not be offset against compensation income.
Write formula for mixed income earners
231
What is the treatment if there is a net loss in the income of a mixed income earner?
It is not offset against compensation income. It is not deductible.
Is the taxable income of corporations computed in the same was ay pure business or professional income earner?
Yes
The taxable income is computed based on the taxpayer’s accounting method. If no such method is employed or the method does not clearly reflect the income, what happens?
The Commissioner’s opinion of method is used
This pertains to the acquisition cost of the goods sold for merchandising or the manufacturing cost of ht goods sold in the case of manufacturing.
Cost of Sales
The cost of goods sold may be determine by the specific identification using perpetual inventory system with the aid of?
Point-of-sale machines
What is the formula for COGS using periodic inventory system?
BI
Net Pur.
Freight in
TGAS
Less:EI
COGS
This pertain to all direct cost of rendering the services such as cost of labor, materials, and overhead costs.
Cost of Services
This pertain to revenue from the sale of service.
Fees
This pertain to cash collection from he sale of goods or services.
Receipts
This is a general term which pertains to the gross inflow of benefits or the total return arising from the primary operations of the business.
Revenue
This pertain to revenue from the sale of goods.
Sales
What basis of accounting is denoted by the terms fees or sales or revenue?
Accrual basis
What basis of accounting is denoted by the terms receipts?
Cash basis
Are revenues or receipts from incidental or secondary activities included in the category Sales/revenue/receipts/fees?
Yes
Revenue vs Gross Income
235
If one is a business income earner and a professional income earner, does she need to maintain separate records?
Yes
What is the reason fro the difference in tax return format between individuals and corporations?
OSD or Optional Standard Deduction
Write graduated tax table
Which law introduced the 8% optional tax?
TRAIN Law
The 8% income tax is in lieu of?
- progressive income tax
- 3% percentage business tax on sales or receipts
This is a form of bundled tax which enables one-time compliance for two taxes which would otherwise require separate filing and payments.
8% optional tax
What is the tax rate for MSMEs with not more than 100 million pesos assets excluding land and not more than 5 million taxable income?
20%
What percent is the Minimum Corporate Income Tac?
2%
Do special corporations pay tax?
Yes but their tax rates are lower
Exempt corporations should report their results of operations through what form?
BIR Form 1702-EX
Should exempt corporations still report their results of operations despite not having taxable income?
Yes
When is the deadline for filing the income tax return?
15th day of the 4th month following taxable year (April 15 of following year if calendar year ginamit)
Aside from the annual consolidated income tax return, corporations and individuals engaged in business and those engaged in practice of a profession are required to file?
3 quarterly returns
What form of return for individual taxpayers?
BIR Form 1701Q
What form of return for corporate taxpayers?
BIR Form 1702Q
This is the method where income and expenses for the fiscal year shall be deemed to have been earned and spent equally for each month of the period.
Pro rata method
True or False: The pro rata method is applicable only to fiscal year method corporate taxpayers
False. It is without regard to reporting method whether fiscal or calendar
When is the due date of quarterly income tax return?
45 days from the end of the first three quarters (individuals)
60 days from the end of the first three quarters (corporations)
Read requisites for substituted filing.
