1. INCOME TAXATION BUREAU OF INTERNAL REVENUE
Revenue Region No. 19, Davao City
INCOME TAXATION

2. The wisest mind has something yet to learn.        - George Santayana

3. Topics: Income Taxation Minimum Corporate Income Tax
Improperly Accumulated Earnings Tax
Bad Debts
Interest Expense
Entertainment, Amusement and Recreational Expenses

4. Income Tax Return Defined:
It is a sworn instrument in which the taxpayer discloses the nature and content of his tax liability by formally making a report of his income and allowable deductions for the taxable year in the prescribed form.

5. Classes of Income Tax Return:
Individual income tax returns;
Corporate income tax returns;
Income tax return of general professional partnerships; and
Fiduciary income tax returns

6. Gross Income means:
Income derived from all sources, including, but not limited to the following items:
Compensation
Gross income derived from business or the exercise of profession
Gains derived from dealing in property
Partner’s distributive share of the gross income of GPP

7. Gross Income (continued….)
Interest
Annuities
Rents
Prizes and winnings
Royalties
Pensions
Dividends

8. Net Income
Means the realized gross profit after deducting all the deductions allowed by law or statutes.

9. Net Income Sales P x x x Less Cost of Sales x x x Gross Profit P x x x
Less Business Expenses x x x
Net Income P x x x

10. Taxable Income
Is the income subject to tax less the deductions, if any, authorized by such type of income. In short, this term refers to the “tax base”.

11. Taxable Income: Self-Employed Individuals
Sales P x x x
Less Cost of Sales x x x
Gross Profit P x x x
Less Business Expenses x x x
Net Income P x x x*
Less Personal Exemption and
Additional Exemption x x x
Taxable Income P x x x
*taxable income for juridical entities

12. Taxable Income
For individuals/estates/trusts, it is the income after deducting exemptions, personal and/or additional, and certain allowable deductions from the net income . For corporations and other juridical entities, taxable income would mean the net income.

13. Exclusion from Gross Income
Proceeds of life insurance
Returns of premium received by the insured
Gifts, bequests and devises
Compensation for injuries/sickness
Income exempt from treaty
Retirement benefits, pensions, gratuities

14. Exclusion from Gross Income
Income derived by Foreign Governments
Income derived by government/its political subdivisions
Prizes/Awards - recognition: religious, charitable, scientific, educational, artistic, literary and civic achievements
Prizes/Awards -sports competition

15. Exclusion from Gross Income
13th month pay/other benefits, limited to a maximum P30,000 each calendar year
GSIS, SSS, Philhealth, HDMF, Union Dues
Gains from:
Sale of Bonds, Certificate of Indebtedness with maturity of more than 5 yrs.
Redemption of shares - mutual fund
Winnings from PCSO/Lotto

16. Business Expenses: To be deductible, business expense must:
constitute ordinary and necessary expense;
to be paid or incurred during the taxable year in carrying on or directly attributable to operation and/or conduct of trade, business, or profession;
be reasonable in amount;
be sustained by adequate proof;
not be against law or public policy

17. Allowable Deductions
(A) Expenses - All ordinary/necessary expenses paid or incurred during the taxable year and directly related to pursuit of business/trade/profession.
(1) Salaries, wages, grossed-up monetary value of fringe benefits by having the final tax imposed thereon duly paid;

18. Allowable Deductions (2) Travel expenses here and abroad
(3) Business rental (lessee has no or not taking title, or has no equity over the rented property)
(4) Entertainment, amusement, recreation expenses (not contrary to law, morals, public policy / order) (RR )

19. Allowable Deductions
(B) Interest reduced by certain proportions of interest income subject to final tax of 38% (RR )

20. Allowable Deductions (C) Taxes, except the following (1) Income Tax
(2) Income tax imposed by any foreign country;
(3) Estate and Donor’s taxes; and
(4) Taxes assessed against local benefits of a kind which increased the value of assessed property

21. Allowable Deductions (D) Losses, in general
(1) Sustained during the taxable year without any form of indemnification
(a) if incurred in trade, business, profession; and
(b) of property connected with trade, business
Except: those losses claimed as a
deduction for estate tax purposes

22. Allowable Deduction
(2) Incurred by a non-resident alien individual or foreign corporation sustained during the year, in the conduct of business, trade or profession w/o any form of indemnification
(3) Net Operating Loss Carry Over (NOLCO)

23. Allowable Deduction (4) Capital losses, in relation to Sec. 39
(a) Sale/exchange of capital assets; &
(b) Securities becoming worthless
Wash sales of stocks/securities, in
relation to Sec. 38
(6) Wagering Losses
(7) Abandonment losses, on petroleum operating & producing well

24. Allowable Deductions (E) Bad Debts - RR 5-99 and RR 25-2002
(1) Debts due to taxpayer ascertained worthless; and
(2) Securities becoming worthless

25. Allowable Deductions (F) Depreciation
Use of Certain methods and rates:
(a) straight-line;
(b) declining-balance
(c) sum-of-the-years digit; and
(d) other methods prescribed by the Secretary of Finance

26. Allowable Deductions (G) Depletion (H) Charitable/Other Contributions
(1) Subject to limitation
(a) for individual - 10%
(b) for corp %

27. Allowable Deductions (2) Deductible in full
a) To Government under the annual priority plan
b) To certain foreign institution or international organizations;
c) Donations to accredited NGOs

28. Allowable Deductions (I) Research and Development
(1) Deducted in full amount as an expense for the period; or
(2) Amortized over a period of not
more than 60 months in which
taxpayer realized benefits from such expenditures

29. Allowable Deduction (J) Pension Trusts
(K) Additional Requirements for Deductibility of certain payments

30. Allowable Deduction (L) Optional Standard Deduction
Old Law: % of gross income
RA 9504 (RR ):
Individual % of Gross Sales/Gross
Receipts
Corporation - 40% of Gross Income

31. Allowable Deduction
(M) Premiums payments of Health/Hospitalization Insurance of an Individual Taxpayer
- P2,400 or P200/mo. Per family whose
gross annual income does not exceed P250,000 for the taxable period.

32. PERSONAL & ADDITIONAL EXEMPTION
Old Law
RA 9504
% OF INCREASE
SINGLE
20,000
50,000
150%
HEAD OF FAMILY
25,000
100%
MARRIED
32,000
33%
FOR EACH QUALIFIED DEPENDENT CHILD
8,000
300%

33. PERSONAL AND ADDITIONAL EXEMPTION
2007
Single ,000
Head of the
Family ,000
Married ,000
Qualified
dependent
child ,000
2008
Single ,000
Family 37,500
Married ,000
child 16,500
2009
Single 50,000
Family 50,000
Married ,000
child 25,000

34. Non-Deductible Items (A) In general:
(1) Personal, living or family expenses;
(2) Amount paid to increase value of any property or estate;
(3) Amount extended in restoring property where an allowance is or has been made

35. Non-Deductible Items
(4) Premiums in life insurance policy covering the life of officer or employee of the taxpayer where the latter is the beneficiary.
(B) Losses from sales or exchanges of property.

36. General Principles of Taxation
A citizen of the Phils. residing therein is taxable on all income derived from sources within and without the Phils.
A non-resident citizen is taxable only on income derived from sources within the Phils.

37. General Principles of Taxation
An individual citizen of the Phils. who is working and deriving income from abroad as an OCW is taxable only on income from sources within the Phils.
An alien individual, whether a resident or not of the Phils., is taxable only on income derived from sources within the Phils.

38. General Principles of Taxation
A domestic corp. is taxable on all income derived from sources within and without the Phils.,
A foreign corporation, whether engaged or not in trade or business in the Phils. is taxable only on income derived from sources within the Phils.

39. Where to file
It shall be filed with the AAB, or the Collection Agent, or duly authorized treasurer of the city or municipality having jurisdiction over the principal office / residence or place where the books of accounts are kept.

40. When to file For Individual / Estate/ Trust
First Quarter April 15 of the current year
Second Quarter - Aug. 15
Third Quarter - Nov. 15
Annual Return - April 15 of the ff. year

41. When to file For Corporation/Partnership Quarterly Income Tax Return
60 days after the close of the taxable quarter
Annual Income Tax Return
15th day of the 4th month following the close of the taxpayer’s taxable year.

42. Topics: Income Taxation Minimum Corporate Income Tax
Improperly Accumulated Earnings Tax
Bad Debts
Interest Expense
Entertainment, Amusement and Recreational Expenses

43. Knowledge is proud that she knows so much; Wisdom is humble that she knows no more.        - Cowper

44. THE END