Compensation Income - Flashcards
which type of earners can avail of the 8% gross income tax option
- earning business/professional income
- mixed income earner (compensation + business income)
note
not available for pure compensation earners
what is one benefit in opting for the 8% gross income tax?
no need to pay for other percentage tax where gross sales is NOT subject to 12% VAT
the 8% is not imposed directly on the G.income, it’s G.income less 250k** which is very good
REQUISITES FOR 8% OPTION TO BE APPLICABLE
- You have to be earning business or professional income
- Your gross sales [or] gross receipts for the year should NOT exceed 3 million pesos
- You must not have registered as a VAT taxpayer
- Your business is not a business which is subject to any other special rate of other percentage tax but just the 3% other percentage tax.
consistent w/ requisites,
the option of 8% is NOT available to?
- vat registered tax payers regardless amount of gross sales receipts
- taxayer subject to other percentage taxes
- partners of a general professional partnership
how to compute or the formulate for purely compensation income earners?
TI = GI - Nontaxable Income/Benefits
how to compute for purely self-employed and/or professional income earners
GS/GR [and] non-operating income NOT exceeding the VAT threshold provided in NIRC of the Tax 3M
what options are available to self-employed/professionals whose GR/GS [and] non-operating income does not exceed the VAT threshold of 3M
- graduated rates
OR
- 8% tax on GS/GR [and] NOI in excess of 250k (in lieu of GIT AND percentage tax)
(note)
GIT - graduated income tax
A taxpayer subject to the graduated income tax rates (either selected this as the income tax regime. or failed to signify chosen intention or failed to qualify to be taxed at the 8% income tax rate) is also subject to
applicable business tax
For MIXED income earners, the income tax rates applicable are:
- The compensation income shall be subject to the tax rates prescribed under Section 24(A)(2)(a), [AND]
- The income from business or practice of profession shall be subject to the following:
a. If the gross sales/receipts and other non-operating income do not exceed the VAT threshold, the individual has the option to be taxed at:
1. sec 24(A)(2)(a)
2. 8% based on gross sales/receipts [and] non-operating income
b. If the gross sales/receipts and other non-operating income EXCEEDS the VAT threshold, the individual shall be subject to the graduated income tax rates
BIG NOTE
in the 8% tax rate option, the 250k deduction shall NOT apply since it already was applied in the compensation aspect
On February 2019, Ms. C tendered his resignation to concentrate on her business. Her total compensation income amounted to P150,000 inclusive of benefits of P20, 000.
Her business for 2019 generated gross sales of P2,400,000. Her cost of sales operating expense are P1,000,000 and P600,000, respectively, and with nonoperating income of P100,000.
She opted for the 8% income tax rate. How will you determine his tax liability?
[b] where will the exemption of 250k be applied?
2.4M + 100k nonoperating income = 2.5mil x. 08 = 200k tax income due
NOTE: Even if compensation income did not fully exhaust the 250k exemption, it would still not be reason for you to deduct 250k on your taxable business income just because you avail the 8% gross income tax. It is deemed not available anymore the moment you have a compensation income. The 250k would not still be allowed as a deduction in the business income.
[b]
if mixed earner - ang compensation income is subject to graduated rates. nya diri i apply ang 250k and dili sa professional/business income
🟢 GAINS FROM DEALINGS IN PROPERTY 🟢
Properties of a taxpayer may be classified into 2:
- capital assets
- ordinary assets
The following are the qualifications for you to be exempted from capital gains tax if you sell your principal residence (see Section 24(D)(2) above):
- You sold your principal residence.
- The proceeds will be used to acquire or construct a new principal residence within a period of 18 calendar months.
- The historical cost or adjusted basis of the real property sold or disposed shall be carried over to the new principal residence built or acquired.
- That the Commissioner shall have been duly notified by the taxpayer within thirty (30) days from the date of sale or disposition through a prescribed return of his intention to avail of the tax exemption herein mentioned.
- You need to open an escrow account where you will deposit the supposed 6% capital gains tax.
- Can only be availed only once every 10 years.
- If there is no full utilization of the proceeds of sale or disposition, the portion of the gain presumed to have been realized from the sale or disposition shall be subject to capital gains tax
[3] - What does it mean? Whatever is the value of the property that you sold, that value will be taken together for your new property. It will be part of the cost of the new property.
[5] - So after 18 months, you will be able to get back that deposit in an escrow account. But it will remain there for a period of 18 months. Why? Because you’re trying to determine whether you can qualify under the exemption.
The property that you are going to sell is worth 10 million. 10M is the Gross Selling Price. You purchased the property for 5M, which is the Acquisition Cost. The property is located in Mabolo, Cebu City. So this is under the jurisdiction of RDO 82. The Zonal Value of a property in Mabolo is 130K. The property is 100 sq.m.
So 130k x 100 sq.m = 13,000,000, it’s the Zonal Value.
Let’s say the fair market value determined by the local assessor is 9M.
What will be the tax base for this particular property? Summary of Values:
* GSP = 10M
* Zonal Value = 13M
* FMV = 9M
It will be the highest among the 3 values, which is the ZV of 13M. So this is the value where we based our tax rate of 6%. We don’t deduct the acquisition cost!
CGT: 780,000
What if this is a principal residence? That means that the total proceeds that you got from the sale of your principal residence is only 10M (kay mao man imo GSP). The law says that you must be able to use this up within a period of 18 months just so you can be exempted.
SALE OF SHARES OF STOCKS
