Income Tax On Individuals Flashcards
The following are residents of the PH:
- Those who are citizen of the PH at the time of the adoption of Constitution (Feb 2, 1987)
- Those whose fathers or mothers are citizens of the PH
- Those born BEFORE January 17, 1973 of Filipino Mothers, who elect PH citizenship upon reaching the age of majority
- Those who are naturalized in accordance with law
Non Resident Citizen
- A citizen of PH with a DEFINITE INTENTION TO RESIDE IN ABROAD
- An Immigrant or for employment on a PERMANENT BASIS (OCW-seaman, OFW)
- WHO WORKS and Derives income from abroad which requires him to be phisically present abroad most of the time or ATLEAST 183 DAYS during taxable year (for employment dapat)
Prorata computation if they arrived in PH
Resident Alien
- An aliens who lives in PH with no definite intention as to his stay (floating intention)
- Extended stay - makes his home TEMPORARILY in PH
- Who acquired residence in PH until he abandons the same
Non Rsident Alien
- An alien who comes to the PH for a DEFINITE PURPOSE which in nature may be PROMPTLY accomplished
- Either:
a. NRAETB or
b. NRANETB
IMPT: A NRA who come to the PH and stay for an aggregate of_____ (next card) shall be deemed NRAETB
A NRA who come to the PH and stay for an aggregate of______shall be deemed NRAETB
More than 180 days!
Taxability of Individuals In General including Estate and Trust
Tax Base Tax Rate RC NRC RA NRAETB NRANETB ESTATE OR TRUST
See Answer in Tax Reviewer Pg. 173
Tax Base Tax Rate
RC : W/in and W/out, Sec. 24 A - Ordinary Income Tax
NRC: W/in only
RA : W/in only
NRAETB : W/in only
NRANETB: W/in only, FWT - 25%
ESTATE OR TRUST W/in and W/out, Sec. 24 A - OIT
Sources of Income for Individual Taxpayers
- Compensation Income
- Business or Professional Income
- Passive Income
- Gains from disposition of Property
Explain Income owned in common with the spouse.
Sale or disposal of property conjugally owned by spouses, the gain therefrom shall be divided equally, same with expenses.
Further, spouse can opt to report their income separately but in ONE tax return. BIR encourages spouses to file their income together in ONE RETURN
Allowable Deductions for Individual Taxpayers
For Compensation Income and
Business or Profession Income
*For Compensation Income, only mandatory government contributions (SSS, PagIbig and Phil Health), union dues and exempt bonuses upto 90k. Note that the taxable income of not exceeding 250K is STILL SUBJECT TO 0% TAX
*Business or Profession Income. Allowed to claim ITEMIZED DEDUCTION (based on sec.24 of Tax code) or the OSD.
OSD is applicable for____
Business Income and/or Income from profession
What is OSD. And Explain
This is the optional deduction for Business and Profession Income.
Purpose: Tam*d BIR mag check ng docs
Basis of Computation: 40% of GROSS SALES OR RECEIPTS
For Mixed Income: Should NOT INCLUDE compensation income
NRA cannot be claimed OSD
Period to Elect: Kung ano napili during Q1, yun na gagamitin for the said year. Touched move
7 Rules applicable to the 8% income tax rate:
- Tax base shall be the gross sales/receipts INCLUDING other non-operating income, unlike the graduated rates which are based on taxable income (with itemized deduction or OSD)
- For those earning PURELY from bsiness or practice of profession, the tax base shall be that in excess of P250K
- For mixed income earner (with compensation income) the 250K exemption is not applicable. Kasi nga maavail na yan sa compensation thru graduated rates. Note: If 200k lang and compensation, hindi deductible yung 50k na kulang.
- That 8% is in lieu of the percentage tax under Sec. 116. Hence, the taxpayer shall NOT be subject to the 3% OPT on his gross sales/receipts
- Touch move rule. Pag napili na sa Q1, irrevocable na. No amendment of option shall be made for the said taxable year. Otherwise, pag graduated napili, ganon din (pero durog sya dito kasi may 3% OPT na)
- FS is not required to be attached to the ITR. However, existing rules and regulations on bookkeeping and invoicing/receipting shall still apply.
- If the taxpayer’s gross sales/receipts and other non-operating income exceeds P3M, matic subjected for graduated rates. So sample sa Q1 and Q2 8% sya, tas nung Q3 nag exceed sa P3M, graduated na gagamitin nya pero allowed sa tax credit yung mga tax sa Q1 adn Q2.
Please provide the list of not allowed to avail the 8% flat rate of income tax (6)
- Purely compensation earners (always graduated)
- VAT-registered taxpayers, regardless of the amount of gross receipts/sales and other non-operating income
- Non-VAT taxpayers whose gross sales/receipts exceed P3M
- Taxpayers who are subject to percentage taxes other than the 3% OPT under Sec. 116 (common carrier’s tax, amusement tax, gross receipts tax, etc)
- Partners of GPP
- Individuals enjoying income tax exemption such as those registered under the BMBE, etc.
Are Individuals earning PURELY from business and/or profession availing of the 8% flat rate allowed for Itemized Deduction, OSD or Special Allowable Deductions?
No. Since the tax base for 8% flat rate is the GROSS SALES/RECEIPTS.
Please provide basic format of Computations for Taxable Income and Tax Payable for the following:
Pure Compensation Income
Business or Professional Income Availing Graduated Rates
Business or Professional Income Availing 8% FLATE RATE
Mixed Income Earners
Please answer in writing or just recite.
Individual answer per card
Please provide basic format of Computations for Taxable Income and Tax Payable for the following:
Pure Compensation Income
*Pure Compensation Income:
Gross Compensation Income XX
Less: Non-Taxable Compensation Income XX
=Taxable Income XX (then get the tax due based on Graduated Tax Rate)
Tax Due XX
Less: Withholding Tax on Wages XX
Tax Payable (Refundable) XX
Please provide basic format of Computations for Taxable Income and Tax Payable for the following:
Business or Professional Income Availing Graduated Rates
*Business or Professional Income Availing Graduated Rates:
Gross Sales/Receipts from Bus./Profession xx
Less: Costs and Allowable Deductions (OSD or Itemized)
=Taxable Income
Tax Due xx
Less: Withholding Tax xx
Creditable Tax xx
=Tax Payable (Refundable)
Please provide basic format of Computations for Taxable Income and Tax Payable for the following:
Business or Professional Income Availing 8% FLATE RATE
*Business or Professional Income Availing 8% FLAT RATE
Gross Sales/Receipts xx
Add: Other Non Operating Income xx
Less: First P250K exempt from Income Tax xx
=Taxable Sales/Receipts xx
x Tax Rate 8%
Income Tax Due xx
Less: Withholding Tax xx
Creditable Tax xx
=Tax Payable (Refundable)
Please provide basic format of Computations for Taxable Income and Tax Payable for the following:
Mixed Income Earners
Individual answer per card
Please answer in writing or just recite.
*Mixed Income Earners (Compensation/Bus./Profession)
-If not exceed to P3M, either:
>8% income tax rate WITHOUT THE FIRST 250K EXEMPT. Kasi ma aavail nya yan sa compensation.
So, ganon padin, SEPARATE mo lang computation then add tax due from both (comp and bus/profession) then less Withholding taxes/tax credits = Tax Payable/Refundable
Graduated rates, dito, iadd mo lang lang lahat. Ganon padin.
If more than P3M, matic Graduated Rates
Compensation Income is always subject to Graduated Tax Rates
Truth
The following are not allowed to avail of the 8% flat rate of income tax
6
- Purely compensation income earners
- VAT-registered taxpayers, regardless of the amount of gross sales/receipts and other operating income
- Non-VAT taxpayers whose gross sales/receipts exceed P3M VAT threshold (graduated tax rates)
- Taxpayers who are subject to percentage taxes other than the 3% OPT under Sec. 116
- Partners of GPP
- Individuals enjoying tax exemption such as those reqistered under the Brgy. Micro Business Enterprises (BMBEs)
Please review Two Graduated Income Tax Rate of Individuals
Coverage and Schedule
Though it should be given in Bexam
January 1 2018 to December 31,2022
Effective January 1, 2023
TRAIN MEANING
Tax Reform for Acceleration and Inclusion
CREATE ACT MEANING
Corporate Recovery and Tax Incentives for Enterprises
NRANETB TAX RATE?
Except for sale of Capital assets (shares of stock and real property), THE ENTIRE INCOME received from all sources within is subject to 25% Tax rate! Based on Gross Income!!
Ofcourse, Interest Income earned from foreign currency deposit unit is exempt
Passive Income is Subject to ____
Final Withholding Tax
Who is the withholding agent in Final Withholding Tax?
Payor
The___ is not required to include the income subject to FWT to hi s gross income subject to regular income tax.
Further, he need need not file a return for the income subjected to Final Tax
Payee
List of Income that are subject to FWT and its rates based on 5 taxpayer classification
Passive Income:
1. Interest
2. Prizes
3. Winnings
4. Royalties
Share in net come from Partnership (GPP is exempt)
Capital Gains Tax
See sir Brad’s App - Income Taxation for Rates or Gsheet. Must Memorize!
NOTE: EARNED WTHIN LANG LAHAT YANG RATES NA YAN
So all Passive Income earned OUTSIDE PH for RC, not subject to FWT but form part of regular income tax
Explain Exempt Prizes
- From religious, charitable, scientific, educational, artistic, literary or civic achievement. Provided:
a. The individual was selected without any action on his part to enter the contest or proceeding, and
b. not required to render future services as condition to receive the prize/reward
Prize of 10K or less
Winnings from PCSO 10K or less
Prize of 10K or less -Not Subject to FWT but part of gross income subject to regular income tax
Winnings from PCSO 10K or less - EXEMPT
Explain Informer’s Reward
-May 10% sya sa revenues, surcharges o fees revovered or 1M per case, whichever is LOWER
-FWT: 10%
-Di kassama sa reward revenue officials or employees, public officials or kamag-anak thereof within the 6th degree of consanguinity
Difference between Capital Assets and Ordinary Assets
Ordinary Assets:
All property or stock used in trade or business
Capital Gains - are those not falling within the definition of an ordinary business
No gain or loss shall be recognized in pursuance of a PLAN OF MERGER OR CONSOLIDATION
True
Transactions Subject to Capital Gains Tax (CGT) and its corresponding FT rates?
2
- Sale of SHARES OF STOCK of a Domestic Corporation NOT listed and traded through local stock exchange (15%)
Note: N/A are:
a. dealer in securities
b. investor in shares of stock
c. other exempt - Sale of REAL PROPERTY located in the PH held as a capital asset (6%)
Noted: APPLICAPLE TO 5 CLASSIFICATION (ANYTYPE) OF TAXPAYERS
Yan lang covered for FWT, other can also be considered as Capital Gains but subject to regular income tax!
Capital Gains Tax FWT rate for two covered?
Sale of SHARES OF STOCK of a Domestic Corporation NOT listed and traded through local stock exchange: 15% of net capital gain - excess of the selling price/fair value less cost to sell over cost of shares
Sale of Real Property - Pag may presumed capital gain: 6% × on Selling Price, FMV, Zonal Value whichever is the highest
APPLICAPLE TO 5 CLASSIFICATION (ANYTYPE) OF TAXPAYERS
Other Transactions with CAPITAL GAINS but NOT covered by CGT, instead, regular income tax.
- Retirement of Bonds
- Short sales of property
- Option gains and losses
- Securities becoming worthless
- Liquidating Dividends
- Retirement or Redemption for Cancellation of Preferred shares
Gross Sales in Tax means net of?
Sales returns allowances and discounts
Payment of Tax to BIR is cumulative computation
Q1, Q2, Q3
Yes
What are the type of interests subject for FWT?
- From any currency bank deposit
- From Deposit Substitutes
- From trust funds
- And similar arrangements
Dividends Tax rate
from Domestic Corp?
From Resident Foreign Corp?
Paasive Income
from Domestic Corp-FWT 10% except for NRANETB (25%)
From Resident Foreign Corp-Regular Income Tax rate!
Items Exempt from Income Tax
- Remunarations received as an incident of employment
- Compensation for Services performed for foreign gov. or international org
- Damages (actual, moral, etc)
- Life insurance proceeds
- Return of premium
- Compensation for injuries or sickness
- Income exempt under treaty
- 13th month pay or other benefits - should not exceed 90k
- GSIS, SSS, Medicare and other Contri
- Deminimis Benefits (please review the detailed maximum value per year on pg. 215)
- MWEs;
a.SMW
b.Holiday pay
c. OT
d. NSDS
e. Hazard Pay
Deminimis applies to private or public employees?
Private only
Tips and Gratuities paid directly to an employee. Taxable or not?
Yes. Taxable income but not subject to withholding tax on compensation.
So part ng gross income ng employee which subject to regular income tax
Filing of Returns for Individuals
- Annual ITR
a. 1700 - for individuals Purely compensation income
b. 1701 - self employed pr mixed eraners (kasama Estates and trusts) - Quartely ITR (1701Q) - applicable lang sa individuals who earns business or profession income.
Deadline:
Q1 - May 15 of the current year
Q2- Aug 15
Q3 - Nov 15
If the individuals earning purely compensation has TWO or more employers, pano ang ITR nya?
Required sila to file ITR on their own
Explain Capital Gains Tax ITR:
Real property (1706) - 30 days after sale or dispostion
Shares of stock (1707) - 30 days after each transaction
De Minimis Benefits
Maximum Value for monitized Unused VL credits?
10 days. Note for private only not for government
Rule of law that a child citezenship by his or her place of birth
Jus Soli (right of soil)
Rule of law that a child’s citizenship is determined by its parent citizenship
Jus sanguinis
A resident citizen is a citizen whose stay here in the PH is:
At least 183 days
Passive income earned outside PH.
FWT or Regular tax?
Not subjectbto FWT. But to the Regular Income Tax
Interest Income in Gambling Debt
Winnings in illegal jueteng
is subject to?
Regular or Ordinary Income Tax
Interest Income From Notes Payable/ Promissory Note is subject to?
Regular or ordinary income tax
