Chapter 10

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

86

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. 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. B 5. D 6. D

7. C 8. A 9. A 10. A 11. B 12. A

Problem 10 – 3 D Gross compensation income (P167,500 +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 Net taxable income Problem 10 – 5

B

P190,000 50,000 P140,000 P22,500 22,500 P - 0 -

P 90,000 120,000 P210,000 50,000 P160,000

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 10: Basic Income Tax Patterns

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

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

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

Problem 10 – 7 D 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 Business income Business expenses Net taxable income

P 500,000 ( 200,000) P 300,000

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 10: Basic Income Tax Patterns

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

P240,000 390,000 110,000 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

Problem 10 – 13 Answers for 1 and 2 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

QUARTERS Second Third 240,000 160,000 30,000 30,000 270,000 180,000 (150,000) (100,000) (6,700) (10,050) (20,000) . 93,300 69,950 30% 30% 27,990 20,985 10,000 3,300 6,700

15,000 4,950 10,050

Answer for 3 Royalty income (P60,000 x 20%) Interest income (P15,000 + P10,000 + P15,000 + P20,000) x 10% Total passive income tax Problem 10 – 14 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

Fourth 360,000 30,000 390,000 (160,000) (8,400) (40,000) 181,600 30% 54,480 15,000 6,600 8,400

P12,000 12,000 P24,000

P 7,500,000 ( 4,000,000) 200,000 100,000 P 3,800,000 30% P 1,140,000 P800,000 40,000

840,000

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 10: Basic Income Tax Patterns

Income tax still due and payable

P

300,000