BUREAU OF INTERNAL REVENUE
Revenue Region No. 19, Davao City
INCOME TAXATION
The wisest mind has something yet to learn.
- George Santayana
Topics:
Income Taxation
– Minimum Corporate Income Tax
– Improperly Accumulated Earnings Tax
– Bad Debts
– Interest Expense
– Entertainment, Amusement and Recreational
Expenses
Income Tax Return Defined:
It is a sworn instrument in which the
taxpayer discloses the nature and content
of his tax liability by formally making a
report of his income and allowable
deductions for the taxable year in the
prescribed form.
Classes of Income Tax Return:
Individual income tax returns;
Corporate income tax returns;
Income tax return of general professional
partnerships; and
Fiduciary income tax returns
Gross Income means:
Income derived from all sources,
including, but not limited to the following
items:
Compensation
Gross income derived from business or
the exercise of profession
Gains derived from dealing in property
Partner’s distributive share of the gross
income of GPP
Gross Income (continued….)
Interest
Annuities
Rents
Prizes and winnings
Royalties
Pensions
Dividends
Net Income
Means the realized gross profit after
deducting all the deductions allowed by
law or statutes.
Net Income
Sales
Less Cost of Sales
Gross Profit
Less Business Expenses
Net Income
Pxxx
xxx
Pxxx
xxx
Pxxx
Taxable Income
Is the income subject to tax less the
deductions, if any, authorized by such
type of income. In short, this term refers
to the “tax base”.
Taxable Income: Self-Employed
Individuals
Sales
Less Cost of Sales
Gross Profit
Less Business Expenses
Net Income
Less Personal Exemption and
Additional Exemption
Taxable Income
*taxable income for juridical entities
Pxxx
xxx
Pxxx
xxx
P x x x*
xxx
Pxxx
Taxable Income
For individuals/estates/trusts, it is the
income after deducting exemptions,
personal and/or additional, and certain
allowable deductions from the net income .
For corporations and other juridical
entities, taxable income would mean the
net income.
Exclusion from Gross Income
Proceeds of life insurance
Returns of premium received by the
insured
Gifts, bequests and devises
Compensation for injuries/sickness
Income exempt from treaty
Retirement benefits, pensions, gratuities
Exclusion from Gross Income
Income derived by Foreign Governments
Income derived by government/its political
subdivisions
Prizes/Awards - recognition: religious,
charitable, scientific, educational, artistic,
literary and civic achievements
Prizes/Awards -sports competition
Exclusion from Gross Income
13th month pay/other benefits, limited to a
maximum P30,000 each calendar year
GSIS, SSS, Philhealth, HDMF, Union Dues
Gains from:
– Sale of Bonds, Certificate of Indebtedness with
maturity of more than 5 yrs.
– Redemption of shares - mutual fund
Winnings from PCSO/Lotto
Business Expenses:
To be deductible, business expense must:
– constitute ordinary and necessary expense;
– to be paid or incurred during the taxable year
in carrying on or directly attributable to
operation and/or conduct of trade, business,
or profession;
– be reasonable in amount;
– be sustained by adequate proof;
– not be against law or public policy
Allowable Deductions
(A) Expenses - All ordinary/necessary
expenses paid or incurred during the
taxable year and directly related to pursuit
of business/trade/profession.
(1) Salaries, wages, grossed-up monetary
value of fringe benefits by having the final tax
imposed thereon duly paid;
Allowable Deductions
(2) Travel expenses here and abroad
(3) Business rental (lessee has no or not taking
title, or has no equity over the rented
property)
(4) Entertainment, amusement, recreation
expenses (not contrary to law, morals, public
policy / order) (RR 20-2002)
Allowable Deductions
(B) Interest reduced by certain proportions
of interest income subject to final tax of
38% (RR 13-2000)
Allowable Deductions
(C) Taxes, except the following
(1) Income Tax
(2) Income tax imposed by any foreign
country;
(3) Estate and Donor’s taxes; and
(4) Taxes assessed against local
benefits
of a kind which
increased the value
of assessed
property
Allowable Deductions
(D) Losses, in general
(1) Sustained during the taxable year without
any form of indemnification
(a) if incurred in trade, business, profession;
and
(b) of property connected with trade, business
Except: those losses claimed as a
deduction for estate tax purposes
Allowable Deduction
(2) Incurred by a non-resident alien
individual or foreign corporation sustained
during the year, in the conduct of
business, trade or profession w/o any form
of indemnification
(3) Net Operating Loss Carry Over
(NOLCO)
Allowable Deduction
(4) Capital losses, in relation to Sec. 39
(a) Sale/exchange of capital assets; &
(b) Securities becoming worthless
(5) Wash sales of stocks/securities, in
relation
to Sec. 38
(6) Wagering Losses
(7) Abandonment losses, on petroleum
operating & producing well
Allowable Deductions
(E) Bad Debts - RR 5-99 and RR 25-2002
(1) Debts due to taxpayer ascertained
worthless; and
(2) Securities becoming worthless
Allowable Deductions
(F) Depreciation
Use of Certain methods and rates:
(a) straight-line;
(b) declining-balance
(c) sum-of-the-years digit; and
(d) other methods prescribed by the
Secretary of Finance
Allowable Deductions
(G) Depletion
(H) Charitable/Other Contributions
(1) Subject to limitation
(a) for individual - 10%
(b) for corp.
- 5%
Allowable Deductions
(2) Deductible in full
a) To Government under the
annual priority plan
b) To certain foreign institution or
international organizations;
c) Donations to accredited NGOs
Allowable Deductions
(I) Research and Development
(1) Deducted in full amount as an
expense for the period; or
(2) Amortized over a period of not
more than 60 months in which
taxpayer realized benefits from
such expenditures
Allowable Deduction
(J) Pension Trusts
(K) Additional Requirements for
Deductibility of certain payments
Allowable Deduction
(L) Optional Standard Deduction
Old Law: - 10% of gross income
RA 9504 (RR 16-2008):
Individual
Sales/Gross
- 40% of Gross
Receipts
Corporation - 40% of Gross Income
Allowable Deduction
(M) Premiums payments of
Health/Hospitalization Insurance of an
Individual Taxpayer
- P2,400 or P200/mo. Per family whose
gross annual income does not exceed
P250,000 for the taxable period.
PERSONAL & ADDITIONAL
EXEMPTION
Old Law
RA 9504
% OF
INCREASE
SINGLE
20,000
50,000
150%
HEAD OF FAMILY
25,000
50,000
100%
MARRIED
32,000
50,000
33%
8,000
25,000
300%
FOR EACH
QUALIFIED
DEPENDENT
CHILD
PERSONAL AND
ADDITIONAL EXEMPTION
2007
Single
20,000
Head of the
Family
25,000
Married
32,000
Qualified
dependent
child
8,000
2008
Single
35,000
Head of the
Family 37,500
Married
41,000
Qualified
dependent
child 16,500
2009
Single
50,000
Head of the
Family 50,000
Married 50,000
Qualified
dependent
child 25,000
Non-Deductible Items
(A) In general:
(1) Personal, living or family expenses;
(2) Amount paid to increase value of
any property or estate;
(3) Amount extended in restoring
property where an allowance is or
has been made
Non-Deductible Items
(4) Premiums in life insurance policy
covering the life of officer or
employee of the taxpayer where
the latter is the beneficiary.
(B) Losses from sales or exchanges of
property.
General Principles of Taxation
A citizen of the Phils. residing therein is
taxable on all income derived from sources
within and without the Phils.
A non-resident citizen is taxable only on
income derived from sources within the
Phils.
General Principles of Taxation
An individual citizen of the Phils. who is
working and deriving income from abroad
as an OCW is taxable only on income from
sources within the Phils.
An alien individual, whether a resident or
not of the Phils., is taxable only on income
derived from sources within the Phils.
General Principles of Taxation
A domestic corp. is taxable on all income
derived from sources within and without
the Phils.,
A foreign corporation, whether engaged or
not in trade or business in the Phils. is
taxable only on income derived from
sources within the Phils.
Where to file
It shall be filed with the AAB, or the
Collection Agent, or duly authorized
treasurer of the city or municipality having
jurisdiction over the principal office /
residence or place where the books of
accounts are kept.
When to file
For Individual / Estate/ Trust
– First Quarter
-
April 15 of the current year
– Second Quarter - Aug. 15
– Third Quarter
- Nov. 15
– Annual Return - April 15 of the ff. year
When to file
For Corporation/Partnership
– Quarterly Income Tax Return
60 days after the close of the taxable quarter
– Annual Income Tax Return
15th day of the 4th month following the close of the
taxpayer’s taxable year.
Topics:
Income Taxation
– Minimum Corporate Income Tax
– Improperly Accumulated Earnings Tax
– Bad Debts
– Interest Expense
– Entertainment, Amusement and Recreational
Expenses
Knowledge is proud that she knows so much;
Wisdom is humble that she knows no more.
- Cowper
THE END