Chapter 7 - Introduction to Regular Income Tax CHAPTER 7 INTRODUCTION TO REGULAR INCOME TAX Chapter Overview and Objectives: This chapter Provides an overview of the regular income tax intended to acquaint readers with the nature and tax structures of the regular income tax. It also discusses regular tax reporting and income tax determination. Subsequent chapters deal with specific aspects of the regular income tax. After this chapter, readers are expected to demonstrate knowledge on the following: 1. The scope of regular income and its tax model 2. The features of the regular income tax 3. The concept of inclusion and exclusions from gross income 4.. The types of gross income subject to regular tax . 5. The concept of deduction and personal exemption 6. The concept of deductions compared to personal exemptions 7. Measurement of gross income from employment and business and the treatment of other income 8. The concept of operating income or revenue and the difference in tax presentation of individuals and corporate taxpayers 9. The procedural computation of taxable income of corporations and different individual taxpayers 10. The computation of the regular tax for individuals and corporations 11. The deadline of the regular tax returns 12. Applicability of the quarterly filing and its deadlines CHARACTERISTICS OF THE REGULAR INCOME TAX 1. General in coverage 2. Anet income tax 3. An annual tax 4. Creditable withholding tax 5. Progressive or proportional tax General coverage i The regular income tax applies to all items of income except those that are subject to final tax, capital gains tax, and special tax regimes. Net income taxation i i The regular tax is an imposition on residual profits or gains after deductions for expenses and personal exemptions allowable by law. 221Chapter 7 - Introduction to Regular Income Tax Annual income tax . . The regular income tax applies on yearly profits or gains. The gross income an expenses of the taxpayer are measured using the accounting methods adopted by the taxpayer and are reported to the government over the accounting period selecteq ty the taxpayer. Creditable withholding taxes ; ; / Most items of regular income are subject to creditable withholding tax (CWT). These creditable withholding taxes are advanced taxes that must be deducted against regula, tax due in computing the tax still due to the government. Progressive or proportional tax The NIRC imposes a progressive tax on the taxable income of individuals while it | imposes a flat or proportional tax of 30% upon the taxable income of corporations Note that the revision of the corporate income tax in the second package of the TRAIN | Law proposes a 25% corporate income tax. | THE REGULAR INCOME TAX MODEL Gross income - inclusions P XXX,Xxx Less: Allowable deductions XXX,XXX Taxable Income Pox | Gross income consists of the major topics: 1. Exclusions of gross income - list of income exempt to regular income tax 2. Inclusions in gross income - list of income subject to regular income tax 3. Special topics - covers income that are either exclusion or inclusion depending on certain circumstances, such as: a. Fringe benefits b. Dealings in properties GROSS INCOME Gross income constitutes all items of income that are neither excluded in gross income nor subjected to final tax or capital gains tax. The items of gross income | subject to the regular income tax will be extensively discussed in Chapter 9. Exclusions from Gross Income These pertain to items of income that are excl i luded; hence, exempt from regula! income tax. These will be discussed in detail in Chapter 8. | Excluded income vs. exempt income Excluded income is also exempt income. Excluded income are those listed by NIRC as exempt income from regular tax. The term exempt income includes al | income exempt from income tax whether final tax, capital gains tax or regu! 222Chapter 7 - Introduction to Regular Income Tax income tax. Exclusions from gross income are listed in the NIRC. Exemption from income may be provided by the NIRC or special laws. ALLOWABLE DEDUCTIONS Allowable deductions, or simply “deductions,” are expenses of the conduct of business or exercise of profession. They are commonly known as business expenses, The book sub-divided the vast topic of deductions as follows: 1. Principles of Deductions - Chapter 13 2. Regular Allowable Itemized Deductions - Chapter 13-A 3. Special Allowable Itemized Deductions & Net Operating Loss Carry-over - Chapter 13-B 4, The Standard Optional Deductions (OSD) - Chapter 13-C For individual taxpayers, there is a need to note the difference between business expenses and personal expenses. Personal expenses or those that an individual spends that are not connected to furtherance, maintenance or development of his trade, business or profession are non-deductible against gross income. Individuals that are not engage in business cannot claim deductions from gross income. Consequently, individuals are classified as follows: 1. Pure compensation income earner 2. Pure business or professional income earner 3. Mixed income earner — an individual earning both compensation and business or professional income Note on Personal Exemption Previously, the law provides for personal exemption of income of individual taxpayers. The amount of personal exemption depends on the number of dependents who are supported by the taxpayer. Personal exemption is in lieu of the personal, living, and family expenses of an individual taxpayer. Personal exemption is repealed effective January 1, 2018. In an effort the simply the tax system, the TRAIN law simply exempts P250,000 annual income of the individual income taxpayer from regular income tax. This exemption is embedded in the income tax table for individual taxpayers. As such, there is no need to separately deduct personal exemption. DETERMINATION OF TAXABLE INCOME The taxable computed using the Classification nd Globalization rule.Chapter 7 - Introduction to Regular Income Tax Gross income is first classified into: a. Compensation income b. Business or professional income Compensation income vs. Business income | : Compensation income arises from an employer-employee relationship. ‘Thi, relationship is characterized by a power to retrench giving the purchaser of the service a terminate the arrangement when he is losing in business. Business income arises from selling of goods or rendering of services for a profit. In service arrangements where the purchaser of the service has no power to retrench, the income realized thereon is a business income. Treatment of other income Income that are neither compensation income nor business income such as those passive income are simply classified as “other taxable income” and are added to gross income from business and profession. Allowable deductions Business expenses are deducted against gross income from business or profession. No deduction is allowed against compensation income since personal expenses of individuals for cost of living are deemed to be included in the P250,000 blanket exemption in the income tax table. Other income which is neither compensation nor business or professional income is simply added to total gross income from business or profession as “Nom operating income.” If the taxpayer has no business or professional income, the same shall be added to taxable compensation income as “other income.” Taxable income of pure compensation income earner The taxable compensation income of employees is computed as follows: Gross compensation income Po [Link] Less: Non-taxable compensation [Link] Taxable compensation income 2 a Non-taxable compensation includes legally mandated salary deductions and items of compensation income that are exempted by law, contracts, or treaty fro income taxation. The detailed tax rules on compensation income will be discUs* in Chapter 10. 224Chapter 7 - Introduction to Regular Income Tax Taxable income of pure business or professional income earner The taxable net income of businessmen or professionals is computed as follows: Gross Income from business/profession Po oXXX,XXx Add: Non-operating income —___XXX.XXX Total Gross income Po XXX)xxx Less: Allowable deductions XX Taxable net income P_ [Link] The income of mixed income earner from both sources is simply globalized or totaled. A negative net income or net loss when deductions exceeds gross income from business or profession shall not be offset against taxable compensation income because deductions are expenses of business or profession and are properly deductible only against gross income thereto whereas no expense is deductible against taxable compensation income. Mlustration: Individual income taxpayer Case1 Case 2 Case 3 Case 4 Compensation income P. 300,000 P.300,000 | P 300,000 Non-taxable compensation. 30,000 30,000 30,000 Gross business income P 400,000 400,000 200,000 Deductions 250,000 250,000 250,000 Other income 20,000 20,000 20,000 20,000 Taxable income shall be determined in each of the above case as follows: Case 1: A compensation earner with other income Gross compensation income P 300,000 Less: Non-taxable compensation Taxable compensation income P 270,000 Add: Other gross income Taxable income P_290,000 Case 2: A business income earner with other income Gross business income P 400,000 Add: Other gross income ——20,000 Total gross income P 420,000 Less: Allowable deductions — 250,000 Net income B_170,000 225Chapter 7 - Introduction to Regular Income Tax Case 3: A mixed income earner with other income Gross compensation income P 300,000 Less: Non-taxable compensation 30,000 Taxable compensation income P 270,000 Gross business income P 400,000 Other gross income Total gross income P 420,000 Less: Deductions —250,000 Taxable net income __170,000 Taxable Income B_440,000 Case 4: Mixed income earner - with net loss on business or profession Gross compensation income P 300,000 Less: Non-taxable compensation 30,000 Taxable compensation income P 270,000 Gross business income P 200,000 Add: Other gross income 20,000 Total gross income P 220,000 Less: Deductions 250,000 Net loss (230,000) Taxable income Note: A net loss may be carried over as deduction against net income of the succeeding three years. This is referred to as net operating loss carry-over or NOLCO. This will be discussed under deductions in Chapter 13-B. The taxable income of corporations is computed in the same manner as pure business or professional income earner. Accounting Method and Accounting Period The taxable income shall be computed upon the basis of the taxpayer's annual accounting period in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; however, if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made in accordance with such method that in the opinion of the Commissioner, clearly reflects the income. 226Chapter 7 - Introduction to Regular Income Tax In short, Taxpayers using Shi pay all compute taxable income using _| GAAP cash basis on a calendar year Tax cash basis on a calendar year GAAP cash basis on a fiscal year Tax cash basis on a fiscal year GAAP accrual basis on acalendar year Tax accrual basis on a calendar year GAAP accrual basis on a fiscal year Tax accrual basis on a fiscal year Determination of Gross Income from Business or Profession The gross income from business on the sale of goods is computed as: Sales Po XXK,XXxx Less: Cost of goods sold (cost of sales) XK XXX Gross income Px Cost of sales Cost of sales pertains to the acquisition cost of the goods sold for merchandising or the manufacturing cost of the goods sold in the case of manufacturing. Cost of sale of a trading business The cost of goods sold may be determined by the specific identification using perpetual inventory system with the aid of point-of-sale (POS) machines or by the periodic inventory system using the following formula: Beginning inventory Po [Link] Purchases, net of returns and allowances 3H 0K Freight-in 0.0 Total goods available for sale Po xxx Less: Ending inventory XK Poa, Cost of goods sold the cost of goods sold is determined through bar codes of the goods sold or by stock cards indicating the costs of the goods sold. Under the periodic system, the cost of goods sold is established by counting the inventories. The cost of missing items at every reporting date is considered sold. For purposes of costing, the freight costs of the goods purchased are allocated to all units purchased. Under the perpetual system, Cost of sales of a manufacturing business ; / / The cost of goods sold of a manufacturing business is computed in almost the same way with those of a trading business. The detailed costing procedures for inventories of a manufacturing business will be discussed in Chapter 13. 227Chapter 7 - Introduction to Regular Income Tax Mlustration A taxpayer had the following data during the year: Gross sales P 4,000,000 Sales discounts 100,000 Sales return 200,000 Beginning inventory 600,000 Purchases 2,500,000 Purchase returns and allowances 150,000 Freight-in 200,000 Ending inventory 800,000 The cost of sales shall be computed as follows: Beginning inventory P 600,000 Net purchases (P2.5M - P150K) 2,350,000 Freight-in 200,000 Total goods available for sale P 3,150,000 Less: Ending inventory 800,000 Cost of sales 22,350,000 The business gross income shall be computed as follows: Sales (P4M - P100K - P200K) P 3,700,000 Less: Cost of sales —2.350,000 Gross income P_1,350,000 The gross income from sale of services or exercise of a profession is measured as follows: Revenues or gross receipts Po oXxx,xxx Less: Cost of services [Link] Gross income P__xxxxxx Service providers using the accrual basis shall report their revenues while those using the cast basis shall report their gross receipts or collections. Cost of services Cost of services pertains to all direct cost of rendering the services such as cost of labor, materials, and overhead costs. The cost of services should be distinguishe from the indirect costs such as general administration and marketing expenses ® the business. These two are separately presented under the deduction category “Regular allowable itemized deductions.” 228Chapter 7 - Introduction to Regular Income Tax Illustration A practicing auditor had the following income and expenses during the year: Billing for services rendered and out-of-pocket costs P 4,500,000 Salaries of audit staff 1,400,000 Salaries of administrative employees 200,000 Transportation expenses to and from clients 12,000 Supplies used in various engagements 250,000 Supplies and general utilities 120,000 Depreciation of office equipment 80,000 Depreciation of laptops issued to audit staff 50,000 Insurance expense on office properties 20,000 Rent expenses allocable to workspaces 400,000 Rent expenses allocable to administrative offices 50,000 Bad debt expense on non-paying clients 100,000 The cost of services shall include only those directly incurred or related gross revenue from the rendition of services such as: Salaries of audit staff P 1,400,000 Transportation expenses to and from clients 12,000 Rental expense on staff workspaces 400,000 Supplies used in various engagements 250,000 Depreciation of laptops 50,000 Total cost of services P_2.112,000 The gross income shall be computed as follows: Revenue . _ P 4,500,000 Less: Cost of services — 2.112.000 Gross income 22,388,000 INCOME TAX REPORTING FORMAT Reporting Format for Individuals Engaged in Business or Profession Net Sales/Revenues/Receipts/Fees Po xxx xxx Add: Other taxable income from operation not subject to, final tax [Link] Total sales/revenues/receipts/fees P xxx xx Less: Cost of sales or services BAK Gross Income from business/profession P xxxxxx Add: Non-operating income 2X Total Gross income PKK Less: Allowable deductions a Net income Pex 229Chapter 7 - Introduction to Regular Income Tax Sales, revenues, receipts, and fees distinguished Revenue is a general term which pertains to the gross inflow of benefits (tot return) arising from the primary operations of the business. Sales pertains to revenue from the sale of goods while “fees” pertains to revenue from the sale of service. Receipts pertains to cash collection from the sale of goods or services, The terms sales or fees or simply revenue are commonly used to denote the income of taxpayers using the accrual basis while the term receipts is used to denote the income of taxpayers using the cash basis. Revenue vs. gross income Revenue is a gross concept pertaining to the total return in a transaction which includes the return of capital and the return on capital. Gross income is a net concept pertaining to the return on capital in a transaction. Gross income is net of the cost of sales or cost of services. Other taxable income from operations Other taxable income from operations includes revenues or receipts from incidental or secondary operations aside from the primary operations. Examples: 1. A school has tuition fees as primary revenue, but its income from its bookstore, canteen or student dormitories constitutes other operating revenues. 2. A manufacturing firm has its gross income from sale of finished goods as its primary revenue, but its income from scrap sales constitutes other operating revenues. 3. A private hospital has patient service fees as its primary revenue, but may have room rental and sale of medicines at its other operating revenues. 4. A dormitory has boarding fees as its primary revenue, but may have laundry fees and canteen income as other operating revenues. 5. A retail store has its sales of merchandise as its primary revenue, but may eat consignment commission income as other operating revenues. 6. A bus transport company has the receipts from passengers and baggage a5 primary revenue, but may earn income from bus stop restaurants and washrooms as other operating revenues, Non-operating income Non-operating income includes all other items of gross income such as: 1. Gains from dealings in properties Being net of costs, these are gross income items rather than revenue. They a" not part of “Sale/Revenues/Receipts/Fees” but of “Non-operating income individual taxpayers Dealings in properties pertain to the sale, exchange and other disposition properties by the taxpayer. The rules on gains in dealing in properties "© 230ct lh hapter 7 - Introduction to Regular Income Tax covered by the capital gains tax will be discussed in Chapter 12 under regular income taxation. Income distribution from a general professional partnership, taxable trust or estate, or from an exempt joint venture Income distributions from these entities are not revenue, but items of gross income, hence, included as part of the non-operating income of individuals. Casual active income This includes active income from isolated or one-time transactions such as casual carpentry income of a person not engaged in carpentry business. Any expense on casual transactions is set off with the casual income. The net gain or income is a non-operating income. Passive income not subject to final tax This includes passive income not connected with the business of the taxpayer and is not subjected to final tax such as interest on advances to employees and dividends from foreign corporations. Similar to casual income, these do not arise from the regular business operations, hence, classified as non-operating income. lustration An individual taxpayer who is using the accrual basis in his manufacturing business reported the following results of operations in the preceding year: Sales, net of returns, and discounts P 4,000,000 Cost of sales 1,800,000 Dividend income, net of final tax 36,000 Business expenses 1,600,000 Gain on sale of old equipment 100,000 Sale of scrap metals 200,000 Interest income on employee advances 45,000 Gain on sale of domestic stocks directly to a buyer 10,000 The business income of th e individual will be presented in the income tax return as follows: Net Sales/Revenues/Receipts/Fees P 4,000,000 ‘Add: Other taxable income from operations - Scrap sales 200.000 Total Sales/Revenues/Receipts/Fees P 4,200,000 Less: Cost of sales or services —1800,000 Gross Income from Business/Profession P 2,400,000 Add: Non-operating income Gain on sale of equipment P 100,000 Interest income on employee advances 45.000 ___145,000 P 2,545,000 Total Gross Income 231Chapter 7 - Introduction to Regular Income Tax Total Gross Income P 2,545,000 Less: Allowable deductions (Business expenses) Net income P_945,000 Note: Income items subject to final tax like the dividends and capital gains on the Stocks are excluded in the computation of the gross income subject to regular income tax, Reporting Format for Corporate Taxpayers Net Sales/Revenues/Receipts/Fees Po xxx 300K Less: Cost of sales or services —— Gross income from operations Po XKK,Xxx Add: Other taxable income not subject to final tax BK Total gross income Po XXX,Xxx Less: Allowable deductions BEAK Net income 22g Note: For corporate taxpayers, revenues or receipts from secondary or incidental operations will be included under the classification “Sales/Revenues/Receipts/Fees.” Other taxable income not subject to final tax This category includes other items of gross income whether or not arising from the operations of the corporation such as gains from dealings in properties, income distribution from an exempt joint venture, and other passive income not subject to final tax. Illustration Assuming the same data in the previous illustration except that the taxpayer is a corporation, the business income shall be reported as follows: Net Sales/Revenues/Receipts/Fees (P4M + P0.2M) P 4,200,000 Less: Cost of sales —1800,000 Gross income from operations P 2,400,000 Add: Other taxable income not subject to final tax Gain on sale of equipment P 100,000 Interest income on employee advances 45,000 145,000 Total gross income P 2,545,000 Less: Allowable deductions (Business expenses) —1.600,000 Net income B_945,000 The difference in presentation between individuals and corporations ' necessitated by the Optional Standard Deduction (OSD). The basis of the OSD for individual taxpayers is the total revenues or receipts from operations while th? basis of the OSD for corporations is on total gross income subject to regula" income tax whether or not they arise from the regular business operations. 232Chapter 7 - Introduction to Regular Income Tax separate bookkeeping for business and professional practice Individual taxpayers engaged in business or exercise of a profession must maintain a separate record of their transactions from business or professional transactions. The personal transactions of the individual taxpayer must not be mixed with the transactions of the business or professional practice. This is important in the tax treatment of expenses. The personal expense of the taxpayer cannot be deducted against the gross income of the business. The allowable personal exemption fixed by law for individual taxpayers is in lieu of all the actual personal, family and cost of living expenses of the taxpayer. TYPES OF REGULAR INCOME TAX 1. Individual income tax 2. Corporate income tax INDIVIDUAL INCOME TAX The individual income tax or progressive income tax is determined by reference to a tax table of progressive tax rates. The Income Tax Table for Individual Taxpayers (Year 2018 - Year 2022) Taxable Income per Year Income Tax Rate P 250,000 and below 0% ‘Above P250,000 to P400,000 20% of the excess over P250,000 ‘Above P400,000 to P800,000 30,000 + 25% of the excess over P400,000 P 130,000 + 30% of the excess over P800,000 ‘Above P800,000 to P2,000,000 ‘Above P2,000,000 to P8,000,000 ‘Above P8,000,000 P 490,000 + 32% of the excess over P2,000,000 2,410,000 + 35% of the excess aver P8,000,000 Note: Examines are not required to memorize this tax table for Board Exam purposes. Scope of the progressive tax . a Il individuals including taxable estates and trusts The progressive tax covers al f except NRA - NETB which is subject to 25% final tax on gross income. Mlustration 1: Income Tax Computation A resident citizen with has a compensation income of P1,250,000 within the Philippines and P150,000 from abroad. ‘The income tax due shall be computed as follows: 233Chapter 7 - Introduction to Regular Income Tax — —TaxDue _ Taxable compensation income P 1,400,000 Less: Lower limit of the income bracket > where the taxable income qualifies 900,000 P 130,000 t Byces P 600,000 ‘ Multiply by: bracket marginal rate 30% + __180.000 Total income tax due P__310,000 \ [Above P400,000 to P800,000 P30,000 + 25% of the excess over P400,000 L- Above P800,000 to P2,000,000 P 130,000 + 30% of the excess over P800,000 ‘Above P2,000,000 to P8,000,000 | P 490,000 + 32% of the excess over P2,000,000 Note: Recall that a resident citizen is taxable on global income (i.e. P1,250,000 + P150,000). Illustration 2: Income Tax Computation A resident alien has a net business net income of P2,200,000 in the Philippines and P1,250,000 from abroad. The income tax due shall be computed as follows: —TaxDue_ Taxable compensation income P 2,200,000 Less: Lower limit of the income bracket > where the taxable income qualifies — 2,000,000 P 490,000 {Excess P 200,000 {Multiply by: bracket marginal rate 32% 64.000 ‘Total income tax due P__554,000 ' Above P800,000 to P2,000,000 P 130,000 + 30% of the excess over P800,000 ‘-[ZAbove P2,000,000 to P8,000,000 | P 490,000 + 32% of the excess over P2,000,000 Above P8,000,000 P 2,410,000 + 35% of the excess over P8,000,000 Note: Recall that a resident alien is taxable only on Philippine income. The Optional 8% Income Tax The TRAIN law introduced an optional income tax for self-employed and professionals (SEP) wherein they can opt to be taxed at 8% of sales or receipt a" other non-operating income. ‘The 8% income tax shall be in lieu of the: a. Progressive income tax, computed under individual tax table; and b. 3% percentage business tax on sales or receipts 234chapter 7 - Introduction to Regular Income Tax The saapannasacor isa form ofa bundled tax which enables one-time compliance for two would otherwise require separate filing and payments. Details of this tax system will be extensively discussed in Chapter 14. CORPORATE INCOME TAX The corporate income tax, commonly referred to as the regular corporate income tax (RCIT), is a proportional or flat tax at a rate of 30% on taxable income. The RCIT applies to any corporation other than those: a, Subject to final tax such as non-resident foreign corporation and FCDU interest income not subjected to final tax b. Special corporations or those subject to preferential (i.e. lower) tax rates or special regimes c. Exempt corporations Mlustration A corporation has a net income of P1,200,000 in the Philippines and P800,000 from abroad. Assuming the corporation is a domestic corporation, the income tax due shall be computed as follows: Taxable income (world) P 2,000,000 Multiply by: Tax rate 30% Income tax due P__600,000 Assuming the corporation is a resident foreign corporation, the income tax due shall be computed as follows: Taxable income (Philippines) P 1,200,000 Multiply by: Tax rate —__30% Income tax due P_ 360,000 Note: Recall that a domestic corporation is taxable on global income while resident foreign corporation is taxable on Philippine income. The Minimum Corporate Income Tax (MCIT) Corporate taxpayers are subject to a minimum tax, computed as 2% of total gross i j i i ing in business, they are income subject to regular tax. Even if corporations are losing in bi subject to the isin tax. Details of the MCIT will be discussed in Chapter 15-B. Special Corporations Special corporations are tl as private schools, non-pront 1 The taxation of these corporatio hose enjoying lower tax rates but not 0%, such as such fit hospitals and PEZA or TIEZA-registered enterprises. ns will be discussed thoroughly in Chapter 15-A. 235Chapter 7 - Introduction to Regular Income Tax Exempt Corporations suas aul peel corporations are those enjoying 0% tax rate eS Such a i izations with no taxable inco, ent agencies, non-profit organiza' " Eanerutives and those registered with the Board of Investments (BOI) enjoying income tax holiday or ITH. INCOME TAX RETURNS Individual Income Tax Returns Tax Return Form Individual taxpayers Form 1700 Purely employed taxpayer Form 1701A Purely in business or profession, using itemized, OSD or opting to the 8% optional income tax Form 1701 Mixed income earners, Estates and Trusts Corporate income taxpayers Form 1702-RT. Corporations subject only to the 30% regular income tax Form 1702-MX Corporations subject to special or a combination of tax rates Form 1702-EX Corporations that is exempt with no tax due It should be noted that exempt corporations are required to report their results of operations through BIR Form 1702-EX even if they do not have taxable income. They are mandated to itemized their deductions in their income tax return. The rule is apparently intended to assist the BIR in monitoring compliance of exempt corporation with their withholding tax obligations and to provide for a mechanism to identify income earned by third parties. Exempt corporations with gross income subject to the regular corporate income tax or special rate shall file BIR Form 1702-MX. Deadline of filing the income tax return The annual income tax return is due for filing on the 15' day of the fourth month pene the taxable year of the taxpayer. The income tax due shall be paid upo? filing. Rounding rules in the income tax returns The Tequirement for entering centavos in the latest version of the income return (une 2013 version) has been eliminated, If the amount of centavos is 49% , the centavos are dropped down. If i itis funders Geen pp the amount is 50 centavos or more, !! Hence, an amount for P100.49 shall bs i i" An amount of P100.50 shall be rounded to Plow. ee om 0. as P10 rounded to P101, je tax return \ 236Chapter 7 - Introduction to Regular Income Tax Required Attachment in the Annual Income Tax Return 1, Certificate of Independent CPA - if annual sales, earnings, receipts or output exceed P3,000,000) 2. Supplemental form for taxpayers with multiple activities per tax regime 3. Account information form and financial statements (FS) showing: Sales/receipts/fees Cost of sales/services Non-operating and other taxable income Itemized deductions (if taxpayer did not avail of OSD) Taxes and licenses Other information prescribed to be disclosed in the FS 4, Statement of management responsibility (SMR) Certificate of income payments not subjected to Withholding Tax (BIR Form 2304) Certificate of creditable withheld at source (BIR Form 2307) Duly approved Tax debit memo, if applicable Proof of prior year’s excess credits, if applicable Proof of foreign tax credits, if applicable 0. For amended return, proof of tax payment and the return previously filed 1. Certificate of tax treaty relief/Entitlement issued by the concerned Investment Promotion Agency (IPA) ” penoge Hp een S QUARTERLY FILING OF INCOME TAX RETURN Corporations and individuals engaged in business and those engaged in the practice of a profession are required to file three quarterly returns aside from the annual consolidated income tax return. Individual taxpayers engaged in business or practice of profession shall file their quarterly income tax returns using BIR Form 1701Q. Corporations shall file their quarterly income tax returns using BIR Form 1702Q. quarterly tax payments. These quarterly tax payments Taxpayers make estimated leductions) to the annual consolidated income tax due are claimed as tax credit (d of the taxpayer. Deadline of Quarterly Income Tax Returns Quarterly Income Taxpayers Tax Returns Individuals Corporations ame year 60 days end of 1% Qtr Guarter Te gust 15, 60 days end of 2" Qtr ‘August 15, same year 24 Quarter ITR 34 Quarter ITR November 15,same year 60 da) end of 3 Qtr 237Chapter 7 - Introduction to Regular Income Tax Quarterly income tax returns of individuals engaged in business or profession ate due 45 days from the end of the first three quarter whereas the quarterly incom, tax returns of corporate taxpayers are due 60 days from the end of the quarter. Frequency of Reporting Per Taxpayer Type Taxpayer Frequency of Tax Reporting | Individuals Pure compensation income earner Annual Purely engaged in business or profession Quarterly & Annual Mixed income earner Quarterly & Annual Corporations Quarterly & Annual The substituted filing system for employees Pure compensation income earners may be relieved from the obligation to file their annual income tax return if they have no taxable income from other sources other from their lone employer. The employee may avail of the substituted filing system wherein the employer shall withhold the income tax of the employee's compensation. If the employer correctly withheld the tax due of the employee through the withholding tax on compensation, the employee need not file his Form 1700 anymore since there would be no residual tax due or tax refundable. The Form 1700 is required if the employee has other taxable income or has more than one employer, either concurrent or successive, during the year.