INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 65 Chapter 10: Basic Income Tax Patterns CHAPTER 10 BASIC INCOME TAX PATTERNS Problem 10 – TRUE OR FALSE True False - General professional partnerships are tax-exempt False – Not taxable income the Philippines because the passive income is earned outside the Philippines True False – The excess of personal exemption over compensation income is to be deducted from net income from business True False – Decrease by creditable taxes True 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 – A B D C C C C A C Problem 10 – 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 – 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 – 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 - 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 th quarter in the adjusted ITR 66 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 10: Basic Income Tax Patterns Problem 10 – D Gross profit Less: Operating expenses Net taxable income P1,000,000 400,000 P 600,000 Problem 10 – 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 – 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 - - “The minimum corporate income tax is greater than the normal tax Problem 10 – 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) SUGGESTED ANSWERS 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 and 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 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 ... ANSWERS 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...66 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 10: Basic Income Tax Patterns Problem 10 – D Gross profit Less: Operating expenses Net taxable income P1,000,000... 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