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    Hand Out 4 Part 2

    Uploaded by

    Mari Issabelle

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Hand Out 4 Part 2

    Uploaded by

    Mari Issabelle
    4 views2 pages

    Original Title

    Hand-Out-4-Part-2

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    © © All Rights Reserved

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    Copyright:

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    4 views2 pages

    Hand Out 4 Part 2

    Uploaded by

    Mari Issabelle

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    Part 2.

    Individual Income Taxation

    INDIVIDUALS EARNING INCOME BOTH FROM COMPENSATION AND FROM


    SELF-EMPLOYMENT
    (BUSINESS OR PRACTICE OF PROFESSION)
    For mixed income earners, the following income tax rates are applicable:
    1. The compensation income shall be subject to the tax rates prescribed under Section 24 (A)(2)(a)
    of the Tax Code, as amended.
    2. The income from business or practice of profession shall be subject to the following:
    a. If the gross sales/ receipts and other non-operating income do not exceed the value-added
    Tax (VAT) threshold (P3,000,000), the individual has the option to be taxed at:
    i. Graduated income tax rates prescribed under Section 24 (A)(2)(a) of the Tax Code, as
    amended; or
    ii. Eight percent (8%) income tax rate based on gross sales/receipts and other non-operating
    income in lieu of the graduated income tax rates and percentage tax under Section 116 of
    the Tax Code, as amended.
    b. If the gross sales/receipts and other non-operating income exceeds the VAT threshold
    (P3,000,000), the individual shall be subject to the graduated income tax rates prescribed
    under Section 24 (A)(2)(a) of the Tax Code, as amended.

    Illustrative Problem 1. Mr. JKS, an accountant of ABC Company, earned annual compensation
    income of P1,500,000 in 2023, inclusive of the 13 th month and other benefits in the amount of
    P120,000 but net of mandatory contributions to SSS and PhilHealth. Aside from the employment
    income, he owns a convenience store with gross sales of P2,400,000. His cost of sales and operating
    expenses are P1,000,000 and P600,000, respectively, and with non-operating income of P100,000.

    a. His tax due for 2023 shall be computed as follows if he opted to be taxed at 8% income tax
    rate on his gross sales for his income from business:

    Total Compensation Income P 1,500,000


    Less: Non-taxable 13th month pay and other benefits (max) 90,000
    1,410,000
    Add: Excess of Maximum Non-Taxable Bonuses (P120,000 – 90,000) 30,000
    Taxable Compensation Income P 1,440,000

    Tax Due:
    On Compensation:
    On P 800,000 P 102,500
    On excess (P1,440,000-P800,000) x 25% 160,000
    Tax due on Compensation Income P 262,500
    On Business Income:
    Gross Sales P 2,400,000
    Add: Non-operating Income 100,000
    Taxable Business Income 2,500,000
    Multiply by income tax rate 8%
    Tax Due to Business Income P 200,000

    Total Income Tax Due (Compensation and Business) P 462,500

    - The option of 8% income tax rate is applicable only to taxpayer’s income from business,
    and the same is in lieu of the income tax under the graduated income tax rates and the
    percentage tax under Section 116 of the Tax Code, as amended.
    - The amount of P250,000 allowed as a deduction under the law for taxpayers earning
    solely from self-employment/ practice of the profession is not applicable for a mixed-
    income earner under the 8% income tax rate option.
    - The P250,000 mentioned above is already incorporated in the first tier of the graduated
    income tax rates applicable to compensation income.
    b. His tax due for 2018 shall be computed as follows if he did not opt for the 8% income tax
    based on gross sales/receipts and other non-operating income:

    Total Compensation Income P 1,500,000


    Less: Non-taxable 13th month pay and other benefits (max) 90,000
    1,410,000
    Add: Excess of Maximum Non-Taxable Bonuses (P120,000 – 90,000) 30,000
    Taxable Compensation Income P 1,440,000
    Add: Taxable Income from Business-
    Gross Sales P 2,400,000
    Less: Cost of Sales 1,000,000
    Gross Income P 1,400,000
    Less: Operating Expenses 600,000
    Net Income from Operation P 800,000
    Add: Non-operating Income 100,000 900,000
    Total Taxable Income P 2,340,000

    Tax Due:
    On P 2,000,000 P 402,500
    On excess ( P 2,340,000-2,000,000) x 30% 102,200
    Total Income Tax P 504,700

    *The taxable income from both compensation and business shall be combined for the
    purpose of computing the income tax due if the taxpayer chose to be subject under the
    graduated income tax rates.

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