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TAX Notes - Rex B. > Gross Income subject to RIT > Flashcards

Gross Income subject to RIT Flashcards

1
Q

Regular Income tax covers:

A
  1. Active income
  2. All other passive incite not ubjected or exempted to final tax or capital gains t
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2
Q

Nature of Regular Income Tax

A
  • is a general and a residual tax
  • It is imposed on net income
  • It is self-assessed tax by the taxpayer - It employs creditable withholding system.
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3
Q

Taxable Income

A
  • the pertinent items of gross income subject to regular tas less the deductions, if any authorised for such types of in under the NIRC or other special laws

Formula:
GROSS INCOME - DEDUCTIONS
= TAXABLE INCOME

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4
Q

Gross Income

A
  • includes all income other than:
  1. Exclusions in gross income
  2. Income exempted under special laws, treaties, or the Constitution
  3. Income subjected to or exempted to final tax or capital gains tax
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5
Q

Special items of GI

A

Special items of gross income:

  1. Fringe benefits
  • Managerial or supervisory employees- exclusion in gross income being to final tax
  • Rank and file- inclusion in gross income
  1. Gain in dealings in properties
  • Capital gains on stocks and real property -exclusion in gross income being subject to CGT
  • Other gains in dealings in properties- inclusion in gross income

Deductions consist of all business expenses or expenses of the exercise of a profession

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6
Q

Classification of individual taxpayers

A
  1. Pure compensation income earner
  2. Pure business or professional income earner
  3. Mixed income earner
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7
Q

Determination of individual taxable income

A
  1. Classification rule- income is classified into:
  • Compensation income-income under employer-employee relationship
  • Business Income-Includes business or profession
  • Others- added to business income, if no business income it is added to compensation income
  1. Globalization rule
  • deductions are against income from business only
  • a negative business income is not deductible against compensation income
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8
Q

Quarterly returns

A

Individual

  • Form 1701Q
  • Due: 45 days from EOQ

Corporation

  • Form 1702Q
  • Due: 60 days from EOQ
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9
Q

Annual returns

A

Individual

  • Form 1700/ 1701/ 1701A
  • Due: April 15 next year

Corporation

  • Form 1702RT, 1702EX, 1702MX
  • Due: 15th day of 4th month from end of the year
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10
Q

Types of regular income tax

A
  1. Personal Income Tax- also called Progressive Income Tax or Individual Income Tax
  2. Corporate Income Tax
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11
Q

Progressive Income Tax (2018-2022)

A

Year 2018 to 2022

Taxable Income per Year:

  • P250K and below- 0%
  • Above P250K to P400K- 20% of excess over 250K
  • Above P400K to P800K- 30K + 25% of the excess over P400K
  • Above P800K to P2M- P130K + 30% of the excess over 800K
  • Above P2M to P8M- P490K + 32% of the excess over P2M
  • Above 8M- P2.410K + 35% of the excess over P8M
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12
Q

Corporate Income Tax

A

Corporate Income Tax: 30% on taxable income
- is applicable to corporations and partnerships

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13
Q

INCLUSIONS IN GROSS INCOME

A

Gross income includes gains, profits, and income derived from whatever sources, whether legal or illegal not covered by either final taxation or capital gains taxation

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14
Q

EXCLUSIONS FROM GROSS INCOME

(20 items)

A
  1. Proceeds of Life insurance
  2. Return of premium
  3. Donation
  4. Compensation for injury/sickness
  5. Income from TREATY
  6. Retirement/Pension

WITH RETIREMENT PLAN

  • 1/10/50 & Reasonable

W/OUT RETIREMENT PLAN

  • 60 & 5
  1. Separation/Termination
  • Beyond control of employee (sickness/death/others)
  1. Benefit from foreign govt.
  2. US Veteran
  3. GSIS
  4. SSS
  5. Prizes & Awards
  • RECS (no effort & future service)
  • Accredited sports
  1. Investment- foreign govt.
  2. Income of Phil. govt.
  3. 13th month & other benefits
  • 82K before 2018
  • 90K ceiling
  1. Contribution: GSIS, SSS, PhilHealth, HDMF, Pag-ibig, Union dues
  2. Gain on Bonds/Debentures (Maturity: 5 years)
  3. Gain on shares in Mutual funds
  4. Minimum wage (HHON)
  5. Special laws (BMBE, Sale of gold to BSP, BOI-reg under ITH)
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15
Q

Sources of Gross Income

A
  1. Compensation for services
  2. Trade, Business or Exercise of profession
  3. Gains derived from Dealings in Property
  4. Interests
  5. Rents
  6. Royalties
  7. Dividends
  8. Annuities
  9. Prizes & Winnings
  10. Pensions
  11. Partner’s distributable share in net income of GPP
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16
Q

Other sources of GI:

  1. Farming
  2. Tax benefits
  3. Cancellation of indebtedness
  4. Damage recovery
A

FARMING

Taxation of farming gross income requires classification of the following:

  1. Livestock and farm products raised and sold- the selling price of the livestock or farm products is considered gross income.
  2. Livestock and farm purchased and sold- only the accounting gross income (sales less cost of sales) is included in gross income

Taxation Rules:

  • Taxpayer may follow accrual or cash basis in accounting for inventories
  • Expenses in raising the livestock and farm products are deductions from the computed gross income
  • The proceeds of crop insurance or livestock insurance constitute gross income because it represents recovery of lost profits rather than lost capital
17
Q

Other sources of GI:

  1. Farming
  2. Tax benefits
  3. Cancellation of indebtedness
  4. Damage recovery
A

TAX BENEFITS

When a taxpayer gains an advantage by an income tax deduction claimed in the past but were subsequently recovered, the tax benefit should be included in income in the year recovered as item of gross income.

Examples:

  1. Bad debt recovery

General Rule: The recovery of bad debts previously written off constitute a receipt of taxable income

  1. Tax refund

General Rule: Refund of taxes that entered the determination of taxable income should be reverted back to gross income.

Hence, refunds of the following taxes that will not enter determination of taxable income will not be included in gross income:

  • Philippine income tax, except the fringe benefit tax
  • Estate or donor’s tax
  • Special assessment
  • Income tax paid or incurred to a foreign country, if the taxpayer claimed a credit for such tax in the year it was paid or incurred
  • Stock transaction tax

Note: the above items are not deductible against gross income in any case hence they could not give rise to a tax benefit to the taxpayer

  1. Unamortized cost of property abandoned and written off but was subsequently re-entered into use

General Rule: The cost previously expensed should be reverted back into gross income in the year extraction operation is resumed.

Exception to Recoveries of Losses and Expenses: Tax Benefit Rule

When the write-off or tax expense did not cause a reduction in the income tax liability in the period it is claimed, the recovery or refund is exempt because of absence of tax benefit.

18
Q

Other sources of GI:

  1. Farming
  2. Tax benefits
  3. Cancellation of indebtedness
  4. Damage recovery
A
  • in consideration of service- treated as compensation income
  • as an act of gratuity- not an income but a gift taxable under Donor’s Taxation
  • capital transactions such as forfeiting the right to receive dividend in exchange of the debt- treated as dividends and is subject to dividend taxation rules
19
Q

Other sources of GI:

  1. Farming
  2. Tax benefits
  3. Cancellation of indebtedness
  4. Damage recovery
A
  • Compensatory Damages- this constitute return of capital and hence, not taxable

For example: moral damages from personal action such as libel, slander, and breach of promise to marry

  • Recovered Damages- this constitute taxable income since they are recoveries of lost profit.

For example: damages recovered from patent infringement suit

20
Q

Progressive Income Tax (2023-onwards)

A

Year 2023 to onwards

Taxable Income per Year:

  • P250K and below - 0%
  • Above P250K to P400K- 15% of excess over 250K
  • Above P400K to P800K- 22.5K + 20% of the excess over P400K
  • Above P800K to P2M- P102.5K + 25% of the excess over 800K
  • Above P2M to P8M- P402.5K + 30% of the excess over P2M
  • Above 8M- P2, 202.5K + 35% of the excess over P8M

TAX Notes - Rex B. (21 decks)

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