Income taxation by valencia chapter 10 (basic tax patterns)

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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65

Chapter 10: Basic Income Tax Patterns

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
2. B
3. D
4. C
5. C

6.
7.
8.
9.

C
C
A
C

Problem 10 – 3
D
Gross compensation income (P137,500 +P22,500)
Less: Personal exemption – single
Net taxable compensation income
Tax on P140,000
Less: Withholding tax
Net tax payable
Problem 10 – 4
C
Gross compensation income
Net business income (P200,000 x 60%)
Total net income before personal exemption
Less: Personal exemption – married

Net taxable income
Problem 10 – 5
B
Net income for the first quarter (P50,000 + P60,000 +
P70,000)
Less: Optional standard deduction (P180,000 x 40%)
Net business income – first quarter

P190,000
50,000
P140,000
P22,500
22,500
P - 0 P 90,000
120,000
P210,000
50,000
P160,000
P180,000
72,000
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 4 th quarter in the adjusted ITR.


66

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

Chapter 10: Basic Income Tax Patterns

Problem 10 – 6
D
Gross profit
Less: Operating expenses
Net taxable income

P1,000,000
400,000
P 600,000

Problem 10 – 7
Not in the choices
Net taxable income (P5,500,000 – P2,000,000)
Multiplied by corporate income tax rate
Income tax due and payable
Less: Income tax paid
Net tax payable

P3,500,000
30%
P1,050,000
900,000
P 150,000

Problem 10 – 8
C
Minimum corporate income tax (P23,500,000 + P1,500,000) x 2%*

Less: Income tax paid
Net tax refund

P 500,000
500,000
P - 0 -

“The minimum corporate income tax is greater than the normal tax.
Problem 10 – 9
Compensation
Business income (P500,000 + P600,000)
Less: Business expenses (P200,000 + P300,000)
Dividend income earned outside the Philippines
Net taxable income before personal exemption

P 250,000
P1,100,000
500,000

600,000
100,000
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
Compensation
Business income
Less: Business expenses
Net taxable income before personal exemption

P 250,000
P 500,000
200,000

300,000
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)
Business expenses (P200,000 + P300,000)
Dividend income – outside
Net taxable income
Problem 10 – 13
Business income
Business expenses
Net taxable income

(

P1,100,000
500,000)
150,000
P 700,000
P 500,000

( 200,000)
P 300,000

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.


67

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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Chapter 10: Basic Income Tax Patterns

Problem 10 – 14
Gross income 40% of sale
Operating exp. (40% of gross income)
Net taxable income
Multiplied by normal corporate tax rate
Income tax still due

First
400,000
(160,000)
240,000
30%
72,000

QUARTERS

Second
Third
320,000
240,000
(128,000)
( 96,000)
192,000
144,000
30%
30%
56,600
43,200

Fourth
480,000
(192,000)
288,000
30%
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
Answers for 1 and 2 requirements:
Gross profit 40% of sales
Rent income
Total gross profit
Operating expenses before int. & cont.
Deductible interest expense*
Contribution deductible in full

Net taxable income
Multiplied by corp. income tax rate
Quarterly income tax due and payable
Interest expense
Less: Tax differential (int. income x 33%)
*Deductible interest expense

First
200,000
30,000
230,000
(120,000
)
(5,050)
.
104,950
30%
31,485
10,000
4,950
5,050

Problem 10 – 16
Business income
Itemized allowable deductions
Capital gains
Passive income earned outside the Philippines
Net taxable income
Multiplied by corporate income tax rate
Income tax due

Less: Total income taxes paid in the previous quarters
Income tax withheld per BIR form 2307
Income tax still due and payable

QUARTERS
Second
Third
240,000
160,000
30,000
30,000
270,000
180,000
(150,000)
(100,000)

Fourth
360,000
30,000
390,000
(160,000)

(6,700)
(20,000)
93,300
30%
27,990

(10,050)
.

69,950
30%
20,985

(8,400)
(40,000)
181,600
30%
54,480

10,000
3,300
6,700

15,000
4,950
10,050

15,000
6,600
8,400

P 7,500,000
( 4,000,000)
200,000
100,000
P 3,800,000
32%
P 1,216,000
P 800,000

40,000

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

Problem 10 – 17
Total salary income (P16,000 + P4,000) x 12
First three quarters taxable business income (P300,000 + P90,000)
Last quarter’s net taxable business income

P

840,000
376,000
P12,000
12,000
P24,000

P240,000
390,000
110,000


INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

68

Chapter 10: Basic Income Tax Patterns

Total net income before personal exemption
Less: Personal exemption – single
Net taxable income

P740,000
50,000
P690,000

Income tax on P500,000
Income tax on excess (P190,000 x 32%)
Total income tax per ITR
Add: Final withholding tax on interest income
Annual income tax

P125,000
60,800
P185,800
2,000
P187,800