Individual Income Tax

Question 1

Individual Taxpayers

Answer 1

1. Resident citizen
2. Resident alien
3. Non-resident citizen
4. Non-resident alien engaged in trade or business
5. Non-resident alien not engaged in trade or business

Question 2

Taxes on Individuals

Answer 2

1. Final tax
2. Capital gains tax

• Domestic stocks -15%CGT applies to all individuals
• Real property capital asset - 6% CGT on all individuals

3. Regular tax-for active and other income

Question 3

Income Classes

Answer 3

1. Compensation income
2. Business/Professional income

Question 4

Types of Individual Taxpayers as to source of income

Answer 4

1. Purely employed
2. Purely engaged in business/profession
3. Mixed income earners

Question 5

Payment of Regular Tax

Answer 5

1. Compensation income- subject to periodic withholding tax on compensation, reportedly annually
2. Business/Professional income- subject to transactional expanded withholding tax; reported quarterly then anually

Question 6

Tax options for Individuals

Answer 6

1. Regular Income Tax

• Taxpayer shall be subject to business tax (VAT or percentage tax)
• Regular income tax shall be determined using the tax table

2. 8% Commuted Tax

• An annual optional tax
• In lieu of the 3% general percentage tax and the regular income tax
• Tax is computed directly from sales/receipts/revenue/fees + other non-operating income

Question 7

Special Rules with Married Individuals

Answer 7

• Each married person shall compute the amount of income tax separately but their income tax ability shall be reported in one income tax return such that there will be only one income tax payable or income tax refundable.
• Joint income or income that cannot be clearly established as income of either spouse is allocated equally.

Question 8

Rules on Centavos in the Tax returns

Answer 8

49 cents down- dropped off
50 cents up- rounded up

Question 9

Taxation of Trusts & Estates

Answer 9

Estate- the totality of the property left by a deceased person, whether real, personal or intangible. An estate is considered a separate taxpayer only when it is subject to court proceeding (ie. Under judicial settlement)

Trust- the totality of the property conveyed by a person, trustor, to another trustee, for the purpose of enabling the latter to safeguard the property for the benefit of another person, the beneficiary.

A trust is considered a separate taxpayer only when it is irrevocably designated. A revocable trust is considered to be an extension of the grantor and hence, taxable upon the grantor

Question 10

Taxation Rules

Answer 10

1. The same rule in individual taxation applies thus progressive rates also apply.
2. Additional deduction can be claimed for the following:

• amount of income which is to be distributed currently to the beneficiary; and
• amount of its income for the taxable year which is properly paid or credited during such year to any heir, legatee, or beneficiary, but the amount so allowed as a deduction shall be included in computing the taxable income of the heir, legatee or beneficiary

3. Taxable incomes from multiple trusts are consolidated when the grantor and the beneficiary of the several trusts are the same person in each instance