Taxation 1

A. Individuals earning purely compensation income.

Illustration 1: Mr. CSO, a minimum wage earner, works for JRMSU, Inc. He is not engaged in business nor has any
other source of income other than his employment. For 2018, Mr. CSO earned a total compensation income of
P135,000.00.

a. The taxpayer contributed to the SSS, Philhealth, and HDMF amounting to P5,000.00 and has received 13th
month pay of P11,000.00. No Taxable liability because he is a minimum wage earner! 0%

Computation:
a b c

b. The following year, Mr. CSO earned, aside from his basic wage, additional pay of P140,000.00 which
consists of the overtime pay - P80,000.00, night shift differential - P30,000.00, hazard pay - P15,000.00,
and holiday pay - P15,000.00. He has the same benefits and contributions as above. No tax liability!

Computation:
a b c

B. Self-Employed Individuals Earning Purely from Self-Employment or Practice of Profession

Illustration 2: Ms. EQB operates a convenience store while she offers bookkeeping services to her clients. In 2018,
her gross sales amounted to P800,000, in addition to her receipts from bookkeeping services of P300,000.00. She
already signified her intention to be taxed at 8% income tax rate in her 1st quarter return. 2nd type of tax payer

Computation:
a b c
Illustration 3. Ms. EQB above, failed to signify her intention to be taxed at 8% income tax rate on gross sales in her
Quarterly Income Tax Return, and she incurred cost of sales and operating expenses amounting to P600,000.00
and P200,000, respectively, or a total of P800,000.00.

Computation:
a b c

Illustration 4. Mr. JMLH signified his intention to be taxed at 8% income tax rate gross sales in his 1st Quarter
Income Tax Return. He has no other source of income. His total sales for the first three (3) quarters amounted to
P3,000.00 with 4th quarter sales of P3,500,000.00.

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

(8% rate) (8% rate) (8% rate) (8% rate)
Total Sales 500,000.00 500,000.00 2,000,000.00 3,500,000.00
Less: Cost of Sales 300,000.00 300,000.00 1,200,000.00 1,200,000.00
Gross Income 200,000.00 200,000.00 800,000.00 2,300,000.00
Less: Op. Expenses 120,000.00 120,000.00 480,000.00 720,000.00
Taxable Income 80,000.00 80,000.00 320,000.00 1,580,000.00

Computation:
a b c

Illustration 5. Ms. RPSV is a prominent independent contractor who offers architectural and engineering services.
Since her career flourished, her total gross receipts amounted to P4,250,000.00 for taxable year 2018. Her
recorded cost of service and operating expenses were P2,150,000.00 and 1,000,000.00, respectively.

Computation:
a b c
Illustration 6. In 2018, Mr. GCC owns a nightclub and videoke bar, with gross sales/receipts of P2,500,000.00. His
cost of sales and operating expenses are P1,000,000.00 and P600,000.00, respectively, and with non-operating
income of P100,000.00

Computation:
a b c

C. Individuals Earning Income Both from Compensation and from Self-employment (business or practice of
profession)

Illustration 7: Mr. MAG, a Financial Comptroller of JAB Company, earned annual compensation in 2018 of P1,500,
000.00, inclusive of 13th month and other benefits in the amount of P120,000.00 but net of mandatory
contributions to SSS and Philhealth. Aside from his employment income, he owns a convenience store, with gross
sales of P2,400,000.000. His cost of sale and operating expenses are P1,000,000.00 and P600,000.00, respectively,
and with non-operating income of P100,000.00.

a. His tax due for 2018 shall be computed as follows if he opted to be taxed at eight (8%) income tax rate on
his gross sales for is income from business

Computation:
a b c
 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:

Computation:
a b c

c. On February 2019, taxpayer tendered his resignation to concentrate on his business. His total
compensation income amounted to P150,000.00, inclusive of benefits of P20,000.00 His business
operations for taxable year 2019 remains the same. He opted for the eight (8%) income tax rate.

Computation:
a b c

Illustration 8. Mr. WBV, an officer of AMBS International Corp., earned in 2018 an annual compensation of P1,200,
000.00, inclusive of 13th month and other benefits in the amount of P120,000.00. Aside from employment income
, he owns a farm, with gross sales of P3,500,000.00. His cost of sales and operating expenses are P1,000,000.00
and P600,000.00, respectively, and with non-operating income of P100,000.00

Computation:
a b c