Income taxation by valencia chapter 10 (basic tax patterns)

False – Not taxable income the Philippines because the passive income is earned outside the Philippines.. False – The excess of personal exemption over compensation income is to be deduc

CHAPTER 10

BASIC INCOME TAX PATTERNS

Problem 10 – 1 TRUE OR FALSE

1 True

2 False - General professional partnerships are tax-exempt

3 False – Not taxable income the Philippines because the passive income is earned outside the Philippines

4 True

5 False – The excess of personal exemption over compensation income is to be

deducted from net income from business

6 True

7 False – Decrease by creditable taxes

8 True

9 False – passive income is not subject for deductions

10 True

11 False – There should be a combination of various income subject to the same tax rate irrespective of personal exemption

12 False – Taxable only for income earned within

13 False – net income or income from operation

14 False – resident alien could also opt for OSD for business income earned within

15 False – Only P50,000 Siblings are not allowed for additional exemptions

16 False – could claim P150,000

Problem 10 – 2

1 A 6 C

2 B 7 C

3 D 8 A

4 C 9 C

5 C

Problem 10 – 3 D

Gross compensation income (P137,500 +P22,500) P190,000 Less: Personal exemption – single 50,000 Net taxable compensation income P140,000

Less: Withholding tax 22,500

-Problem 10 – 4 C

Gross compensation income P 90,000 Net business income (P200,000 x 60%) 120,000 Total net income before personal exemption P210,000 Less: Personal exemption – married 50,000

Problem 10 – 5 B

Net income for the first quarter (P50,000 + P60,000 +

Less: Optional standard deduction (P180,000 x 40%) 72,000 Net business income – first quarter P108,000 Note: No personal exemption yet is allowed to be deducted in the quarterly income tax The Personal exemption is to be deducted in the 4th quarter in the adjusted ITR

Problem 10 – 6 D

Less: Operating expenses 400,000 Net taxable income P 600,000

Problem 10 – 7 Not in the choices

Net taxable income (P5,500,000 – P2,000,000) P3,500,000 Multiplied by corporate income tax rate 30% Income tax due and payable P1,050,000 Less: Income tax paid 900,000

Problem 10 – 8 C

Minimum corporate income tax (P23,500,000 + P1,500,000) x 2%* P 500,000 Less: Income tax paid 500,000 Net tax refund P - 0 -

“The minimum corporate income tax is greater than the normal tax

Problem 10 – 9

Business income (P500,000 + P600,000) P1,100,000

Less: Business expenses (P200,000 + P300,000) 500,000 600,000 Dividend income earned outside the Philippines 100,000 Net taxable income before personal exemption P 950,000 Note: the dividend income within is subject to final withholding tax of 10%, and as such, is no longer required to be reported in the annual tax return

Problem 10 – 10

Business income P 500,000

Less: Business expenses 200,000 300,000 Net taxable income before personal exemption P 550,000 Note: the dividend income is subject to final withholding tax of 10%, and as such, is no longer required to be reported in the annual tax return

Problem 10 – 11

None Nonresident alien is taxable only for income earned within The dividend income within

is taxable with final tax of 25%

Problem 10 – 12

Business income (P500,000 + P600,000) P1,100,000 Business expenses (P200,000 + P300,000) ( 500,000) Dividend income – outside 150,000 Net taxable income P 700,000

Problem 10 – 13

Note: Foreign corporation is taxable only for income within Dividend income earned within is

taxable in the Philippines but shall not be included as part of the annual ITR because such dividend is subject of final tax

Problem 10 – 14

QUARTERS

First Second Third Fourth Gross income 40% of sale 400,000 320,000 240,000 480,000 Operating exp (40% of gross income) (160,000) (128,000) ( 96,000) (192,000) Net taxable income 240,000 192,000 144,000 288,000 Multiplied by normal corporate tax rate 30% 30% 30% 30% Income tax still due 72,000 56,600 43,200 86,400 Note: Even if the previous quarters net taxable income is not carried to the next quarters the income tax still due is the same because the corporate income tax rate is constant at 30%

Problem 10 – 15

First Second Third Fourth Gross profit 40% of sales 200,000 240,000 160,000 360,000 Rent income 30,000 30,000 30,000 30,000 Total gross profit 230,000 270,000 180,000 390,000 Operating expenses before int & cont (120,000

) (150,000) (100,000) (160,000) Deductible interest expense* (5,050) (6,700) (10,050) (8,400) Contribution deductible in full (20,000) (40,000) Net taxable income 104,950 93,300 69,950 181,600 Multiplied by corp income tax rate 30% 30% 30% 30% Quarterly income tax due and payable 31,485 27,990 20,985 54,480

Interest expense 10,000 10,000 15,000 15,000 Less: Tax differential (int income x 33%) 4,950 3,300 4,950 6,600

*Deductible interest expense 5,050 6,700 10,050 8,400

Problem 10 – 16

Business income P 7,500,000 Itemized allowable deductions ( 4,000,000)

Passive income earned outside the Philippines 100,000 Net taxable income P 3,800,000 Multiplied by corporate income tax rate 32%

Less: Total income taxes paid in the previous quarters P 800,000

Income tax withheld per BIR form 2307 40,000 840,000 Income tax still due and payable P 376,000

3 Royalty income (P60,000 x 20%) P12,000 Interest income (P15,000 + P10,000 + P15,000 + P20,000) x 20% 12,000 Total passive income tax P24,000

Problem 10 – 17

Total salary income (P16,000 + P4,000) x 12 P240,000 First three quarters taxable business income (P300,000 + P90,000) 390,000 Last quarter’s net taxable business income 110,000

Total net income before personal exemption P740,000 Less: Personal exemption – single 50,000

Income tax on P500,000 P125,000 Income tax on excess (P190,000 x 32%) 60,800 Total income tax per ITR P185,800 Add: Final withholding tax on interest income 2,000