Income Taxation Flashcards
what is Income tax?
sec. 31 NIRC
“means the pertinent items of gross income specified in this Code, less the deductions, if any, authorized for such types of income by this Code or other special laws.”
[note]
tax of all yearly profits arising from property, professions, trades or offices or as a tax on a person’s income, emoluments or profit.
formula for taxable income
TI = Gross income - allowable deductions
Enumerate Gross Income
(1) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions, and similar items;
(2) Gross income derived from the conduct of trade or business or the exercise of a profession;
(3) Gains derived from dealings in property;
(4) Interests;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Annuities;
(9) Prizes and winnings;
(10) Pensions; and
(11) Partner’s distributive share from the net income of the general professional partnership.
note
- may include Treasures & gambling gains
is receiving a whiteboard marker without pay income? YES
after a year, it will no longer be considered income, it will be considered? __
is it taxable?
CAPITAL
No, we do not tax CAPITAL.
when is INCOME deemed taxable?
if all these elements are present
- there is gain or profit and
- G/P is NOT exempted under any law/treaty
Do you earn income from the inc. of your PLDT shares?
No, until you sell it then you’re able to get the income because it remains unrealized
What is the Montgomery test?
It’s possible also that there’s already income, it’s already realized. But not yet received. It’s still on credit. You’re already
on credit
In a lessor-lessee rel’t, is security payment taxable?
No, because you don’t have rights over it only intended for damages if there are on the property therefore not considered as income yet
In a lessor-lessee rel’t, is advance rental taxable?
Yes
What are EXCLUDED from Gross Income?
LAGCRIM
sec. 32 NIRC
- Life insurance
- Amount received by Insured as Return of Premium
- Gifts, Bequests, and Devises
- Compensation for Injuries/Sickness
- Income exempt under a treaty
- Retirement benefits, pensions, gratuities, etc.
- Misc.
GR w/n LI is taxable
XPN
GR: whoever is the beneficiary of the life insurance, there is no tax as it is excluded
XPN: he is using LI as an **investment scheme ** so the proceeds are taxable.
Sec. 32 NIRC > LAGCRIM > Life Insurance
1M life insurance. A is supposed to pay it for 10 years, which is PHP 10k/year, but the life insurance is good for 1M. In year 3, A sold it to B. Therefore, B, the buyer will have to continually pay the proceeds.
Suppose A was able to sell it for 500k and he dies in the 7th year and the premium was paid by B for 4 years which is 40k thousand plus the 500k thousand.
[A] what is the formula for “PROCEEDS”
[B] How much is B’s total COSTs?
[C] why is BUYER the one to pay taxable income?
[D] is SELLER liable for tax income as well?
[a]
Proceeds - (Actual Consideration + amount premium shouldered by transferee)
[b]
1M - (500k+ 40k) = 460k.
hence, 460k is the taxable income on part of the BUYER
[c]
BUYER is taxed beacuse he will be the one who will receive the LI proceeds & that is the income return to sale
[d]
Yes. if there is income for SELLER, (sells it for 500k but purchased it for 30k) the difference then will be considered income on part of seller
Sec. 32 NIRC > LAGCRIM > Amounts Received by Insured as Return of Premium
Your life insurance is good for 20 years. If you will live for 20 years then you can get life insurance. So suppose the same, good for 20 years at 10,000 pesos but you will have a proceeds of 1,000,000 pesos.
how much is to be taxed and why?
800k should be taxed and not the 1M because 200k should be excluded as it is a return of premium which is your cost/payment so it makes sense not to include it in the taxable
Sec. 32 NIRC > LAGCRIM > Gifts, Bequest, and Devices
do we tax bequest (personal property given thru will) and device (real property) under INCOME TAX?
No, it is under Donor’s Tax
Sec. 32 NIRC > LAGCRIM >Compensation to personal injuries/sickness
You figured in an accident using your car and then you bump into another car because of which you are hospitalized for 10 days and you are not able to earn your compensation for 10 days and you have to pay for your medical bills.
[a]
You received insurance or compensation for your car repair and medical fee
is it taxable?
[b]
loss of income during stay in hospital, is it taxable?
Medical expenses is exempt as it is part of Physical Injuries
Repair compensation IS TAXABLE because the damage is not on the person but on the car
[b]
AMAGO - exempt as still part of damages related to sickness + Labor policy of “No work no pay”
Normally, lost income is still income, even if it is received later as compensation for an accident.
The idea is that if you had worked, you would have paid income tax on your salary. So, when you receive damages to replace that lost income, the government still considers it taxable because it’s basically the same as receiving your salary
