CHAPTER 7

INTRODUCTION TO
REGULAR INCOME TAX
CHARACTERISTICS OF REGULAR INCOME
TAX

1. General in Coverage
2. A net income tax
3. An annual tax
4. Creditable withholding tax
5. Progressive or proportional tax
 THE REGULAR INCOME TAX MODEL

 Gross Income Pxxx,xxx

 Less: Allowable Deductions xxx, xxx
 Taxable Income Pxxx,xxx

 GROSS INCOME – CHAPTER 9

 EXCLUSIONS FROM GROSS INCOME – CHAPTER 8
 EXCLUDED INCOME – Exempt from Regular Tax
 EXEMPT INCOME - Exempt in Final, Capital Gains and Regular Income Tax
 ALLOWABLE DEDUCTIONS – CHAPTER 13, 13-A, 13-B & 13-C
CANNOT ALLOW DEDUCTIONS

1. Pure compensation Income Earners

2. Pure business or professional Income
Earner
3. Mixed Income Earner
DETERMINATION OF TAXABLE INCOME

 COMPENSATION INCOME
 BUSINESS OR PROFESSIONAL INCOME

 Pure Compensation Income Earner

 Pure Business or Professional Income Earner
 Mixed Income Earner (page 224-226)
 Compensation earner with other income
 Business income earner with other income
 Mixed income earner with other income
 Mixed income earner with net loss on the profession
DETERMINATION OF TAXABLE INCOME
OF CORPORATE TAXPAYERS

 The taxable income of corporations is computed in the

same manner as pure business or professional income
earner.
 Cost of Sales (page 227)
 Cost of Sales of a Trading Business (page 227)
 Cost of sales of a manufacturing business (page 228)
 Cost of services (page 229)
INCOME TAX REPORT FORMAT
REPORTING FORMAT FOR INDIVIDUALS
ENGAGED IN BUSINESS OR PROFESSION

 SALES, REVENUES, RECEIPTS, AND FEES

 REVENUE vs GROSS INCOME
 OTHER TAXABLE INCOME FROM OPERATIONS
 NON-OPERATING INCOME
 Gains from dealings in properties
 Income distribution from a general professional partnership, taxable estate or
trust, or from an exempt joint venture
 Casual active income
 Passive income not subject to final tax
REPORTING FORMAT FOR CORPORATE
TAXPAYERS

Net Sales / Revenues / Receipts / Fees Pxxx

Less: Cost of Sales or Services xxx
Gross Income from Operations xxx
Add: Other taxable income not subject to final tax* xxx
Total Gross Income xxx
Less: Allowable Deductions xxx
Net Income Pxxx

OPTIONAL STANDARD DEDUCTION IN LIEU OF ALLOWABLE DEDUCTIONS

Individuals – Basis 40% of Gross Revenue / Gross Sales

Corporation – Basis 40% of Gross Income

SEPARATE BOOKKEEPING FOR BUSINESS
AND PROFESSIONAL PRACTICE

 Do not mix books of personal business with profession

 Personal expenses should not be mixed with business expenses

 TYPES OF INCOME
1. Individual Income Tax – Income Tax Table except NRA-NETB 25% Final Tax on
Gross Income
2. Corporate Income Tax – 30% Flat Tax Rate
OPTIONAL 8% INCOME TAX

 BASIS IS 8% OF SALES OR RECEIPT AND OTHER NON-OPERATING INCOME

 8% SHALL BE IN LIEU OF THE
 Progressive Income Tax (Tax Table) – will file 1701 for each quarter , 4th quarter to
be filed 15th day of the fourth month following the taxable year
 3% Percentage Business Tax on Sales or Receipts ( instead of 2551Q 25th of the
following month)
 Must be availed in the 1st Quarter cannot be revoked or changed
 Instead of separate filing, one filing only
CORPORATE INCOME TAX DOES NOT
INCLUDE

 THOSE SUBJECT TO FINAL TAX SUCH

 SPECIAL CORPORATIONS
 EXEMPT CORPORATIONS

 MINIMUM CORPORATE INCOME TAX - (2% OF TOTAL GROSS INCOME)

 SPECIAL CORPORATIONS – ENJOYING LOWER TAX RATES BUT NO 0%

 EXEMPT CORPORATIONS – ENJOYING 0% TAX RATE WITH NO TAX DUES

TAX RETURNS

INDIVIDUAL CORPORATION
 1700  1702-RT
 1701A  1702-MX
 1701  1702-EX

DEADLINE OF FILING OF INCOME TAX RETURN IS ON THE 15TH DAY OF THE

FOURTH MONTH FOLLOWING THE TAXABLE YEAR OF THE TAXPAYER

REQUIRED ATTACHMENTS – Page 237

QUARTERLY FILINGS

1701Q 1702Q
 1ST QTR MAY 15 SAME YEAR  1ST QTR 60 DAYS END OF 1ST QTR
 2ND QTR AUGUST 15 SAME YEAR  2ND QTR 60 DAYS END OF 2ND QTR
 3RD QTR NOVEMBER 15 SAME YEAR  3RD QTR 60 DAYES END OF 3RD QTR
 FREQUENCY OF REPORTING

INDIVIDUALS

PURE COMPENSATION INCOME EARNER – ANNUAL

PURLEY ENGAGED IN BUSINESS OR PROFESSION – QUARTERLY AND ANNUAL
MIXED INCOME EARNER – QUARTERLY AND ANNUAL

CORPORATIONS – QUARTERLY AND ANNUAL

SUBSTITUTED FILING FOR EMPLOYEES – EMPLOYER withhold the income tax of the
employee’s compensation

FORM 1700