Introduction

to Regular
Income Tax
 The Regular Income Tax Model

GROSS INCOME xx
LESS: ALLOWABLE DEDUCTIONS xx
PERSONAL EXEMPTIONS xx
TAXABLE INCOME xx
 Characteristics of the Regular
Income Tax
1. General in coverage – applies to all items of income except those
that are subject to final tax, capital gains tax, & special tax regimes
2. A net income tax – an imposition on residual profits or gains
after deductions for expenses & personal exemption allowable by law.
3. An annual tax – applies on yearly profits or gains
4. Creditable Withholding tax – withheld at source by
customers or clients
Gross Income
– Constitutes all items of income that are
neither excluded in gross income nor
subjected to final tax or capital gains
tax.
Exclusion from Gross Income Exempt Income

These pertains to items of income

that are excluded, hence, exempt Exempt from taxation.
from income taxation.

VS
Traces their origin from either NIRC
Traces their origin from the NIRC
or Special Laws
Allowable Deductions

These are expenses in the conduct of

business or exercise of profession.

OPTIONAL STANDARD
ITEMIZED DEDUCTION DEDUCTION

Wherein the deduction is simply

- Wherein the taxpayer supports
presumed to be 40% percent of
every item of deduction.
GROSS SALES, GROSS RECEIPT, or
GROSS INCOME
 Allowable Deductions vs.
Personal Exemptions
Allowable Deductions
– Pertains to cost or expenses of
earning item of gross income.
– Deductible only from gross
income from business or exercise – Deductible against all types of
of profession
– Considered in the determination
of NET INCOME from business or
profession.
Personal Exemptions
– Deductions in lieu of personal,
family and cost of living expense of
individual taxpayers.
gross income subject to regular
income tax.
– Considered in computation of
TAXABLE INCOME.
 Types of Income Subject to
Regular Income Tax
1. Compensation Income
2. Business or Professional Income
3. Other Income – non-business income and non-
compensation income:
a. Gains from Dealings in Properties
b. Other active or passive income not subject to Final Tax
Compensation Income
– Generally comprises remunerations under an employer-
employee relationship, such as the regular pay of
employees every payroll period and other benefits or
incentives other that the basic pay which is commonly
known as fringe benefits.
Gross Compensation Income xx
Less: Non-taxable Compensation xx
Gross Taxable Compensation Income xx
Less: Personal Exemptions xx
Net Taxable Compensation Income xx
Business Income
– Arises from habitual engagement in any
commercial activity involving regular sales of
goods or services by an individual or a
corporation.
 Sales of GOODS

Sales xxx
Less: Cost of Goods Sold (Cost of Sales) xxx
Gross Income xxx
Professional Income

– Income from exercise of profession or

business gross income from the sales of
services
Revenue or Gross Receipts xx
Less: Cost of Services xx
Gross Income xx

NOTE:
Cost of Services refers to all direct
cost of rendering services (cost of
labor, materials and overhead)
Separate Bookkeeping of Business
and Professional Practice
– Individual taxpayers engaged in business or
exercise of profession should maintain a separate
records of their transactions from business or
professional transactions.
– This is important in the tax treatment of
expenses.
 Computation of Taxable Income of an
Individual Taxpayer

PURE COMPENSATION INCOME EARNER

Gross Taxable Compensation Income xx

Less: Personal Exemption xx
Taxable Compensation Income xx
Other Income xx
Taxable Income xx

NOTE: individual deriving pure

compensation income from one
employer & without income outside
employment may avail substitute
filing system.
 Computation of Taxable Income of an
Individual Taxpayer

PURE BUSINESS/ PROFESSIONAL INCOME

EARNER

Net Income From Business/ Profession xx

Less: Personal Exemption xx
Taxable Business Income xx

NOTE: Treatment of Other Income of a

pure business/professional income earner
is integrated in the business/professional
income through the category “non-
operating income”.
 Computation of Taxable Income of an
Individual Taxpayer

MIXED INCOME EARNER

Taxable Compensation Income xx

Net Income from Business/ Profession xx
Total Taxable Income xx

NOTE: a negative taxable NOTE: Net Operating loss on

compensation income is business/profession is not
deductible from net business/ deductible against taxable
professional income compensation income. (NOLCO)
 Illustration 1
CASE 1 CASE 2 CASE 3 CASE 4

Compensation 400,000 100,000 400,000

Income
Gross Business 400,000 400,000 200,000
Income
Deductions 280,000 280,000 280,000

Other Gross 20,000 20,000 20,000 20,000

Income
Personal 125,000 125,000 125,000 125,000
Exemption
Case 1: Compensation Earner w/
Other Gross Income
Compensation Income 400,000
Less: Personal Exemption 125,000
Taxable Compensation Income 275,000
Add: Other Gross Income 20,000
Taxable Income 295,000
 Case 2: Business Income Earner w/
Other Gross Income
Gross Business Income 400,000
Other Gross Income 20,000
Total Gross Income 420,000
Less: Allowable Deductions 280,000
Net Income 295,000
Less: Personal Exemption 125,000
Taxable Income 15,000
 Case 3: Mixed Income Earner – Negative
taxable compensation income
Gross Taxable Compensation Income 100,000
Less: Personal Exemption 125,000
Taxable Compensation Income (25,000)
Gross Business Income 400,000
Other Gross Income 20,000
Total Gross Income 420,000
Less: Deductions 200,000 140,000
Taxable Income 115,000
 Case 4: Mixed Income Earner – with
Business NET LOSS
Gross Taxable Compensation Income 400,000
Less: Personal Exemption 125,000
Taxable Compensation Income 275,000
Gross Business Income 200,000
Other Gross Income 20,000
Total Gross Income 220,000
Less: Deductions 280,000
NET LOSS (NOLCO) (60,000) -
Taxable Income 275,000
 Income Tax Table for INDIVIDUAL TAXPAYERS (OLD Tax Schedule)

Over But Not Over Basic Tax Plus Of Excess Over

0.00 10,000 0 5% 0
10,000 30,000 500 10% 10,000
30,000 70,000 2,500 15% 30,000
70,000 140,000 8,500 20% 70,000
140,000 250,000 22,500 25% 140,000
250,000 500,000 50,000 30% 250,000
500,000 Above 125,000 32% 500,000
 Income Tax Table of Individual Taxpayers (2018 to Present)

Over But Not Basic Tax Plus Of Excess

Over over
0 250,00 0 0% 0
250,000 400,000 0 20% 250,000
400,000 800,000 30,000 25% 400,000
800,000 2,000,000 130,000 30% 800,000
2,000,000 8,000,000 490,000 32% 2,000,000
8,000,000 above 2,410,000 35% 8,000,000