FUNDAMENTALS OF INCOME TAXATION GROSS INCOME = faxaible income Ya feturn on capital sat incremues net worth v a realized benefit (actual or condructive receipt ¥ not exempted by law, contract, or Healy Return ON Capita ‘Salling price (otal contideration received) —P 12.000 Cost (value of inventory forgone) Gain | Mark-up (grosc income) > Total return (10,000) —> Return OF Capital e0_ Return On Capital Revenue # Fo cath —+ Gross ineome w/ iafinte value —+ OF = Wo income > fife. health. and teputation = Campot be measured in ® CAPTAL_ITEMS W] INFINITE VALUE ieee fe inaurance proceeds = grecs income beneficiary: = faminy member = employer J] net taxable Toxable return on capital: * Any excecs amount received wer premiums paid by the insured upon currender or maturity ‘of the policy (ie the insured ouilives ihe policy) * Gain realized by the insured from the COE ‘or salle OF hig insurance policy + Inferect income trom the unpaid balance of the proceeds of the policy ve HEALTH Retwn 1 Capital Hocpital bins goo OF} Recovery of _, no change in Atiorneys fee took of J Joct capita net worth 00k ~” Poin ond cuftering Sv, OF cath — immeacureable Total eM Woral damages received from: * Breach of promice to marry © Mitnation of affection } not tavabie, * Oral defamation or clanderOTHER EXAMPLES OF TAXABLE RECOVERY OF Lon PROFIT (Return ON Caplal —# taxable) eee en he Ia rp sete nt Ahrvagh aha nerve © Proceeds on crop or livestock incurance ~ wy ‘na tte ga + Damages under patent infringement cuit ~ Reraashecammanicnen Brie Miome ne rntned dae 1 + Gwaranice income payments —gnarante Permenr i not gratnty ft Guarantee (promise) 19 Mr. x = 500K we Mx Met income oor poe. 00K (io0%) —> joo ——————+ (6uarantee payments —» taxable ) ‘900K oor Realized Benefit = increase in net worth + comed fin nek worth Donation v * Inheritance v x Gain on sate v v Holding gains (increase im Fv) v x ‘Loan x REQUKITES: V ‘There mult be an exchange transaction —> Sale | barter The transaction involves another entity ————* natural | juridical ized ¥ Wt inereaset tne wet worth of tne recipient Le coe propre = hit business Xe Ly home office branch xe | Fi Ly partner + partnerchip v Jame Le parent + tubsidiary wv J entiies NOT EXEMPTED BY LAW, CONTRAG, OR TREAY ~ taxable TYPES OF INCOME TAXPAYERS INDWIDUAL INCOME TAXPAYERS tah Aue fine of adoption of the Contain om Fel 2 IRE sean oat + Nalvrened ty four? aces ee teen ae omit fn of Ws pa nese aba wade ntti cc tern Sta a Ree ne fn tt a tpt rei ne Tay ce able Bn nee frien Sonideed aie nonrciaent, Sauna ane artver nthe PH a anime" ding the asa ear fe i TS nee eda SPU a ! vp AUEN “Trinh lacie eri Yo Ye ty Comet tr dct parpoe won Ih nace emir a eotended tay Mabing Wi home femparwriby in PH Ls ENGAGED IN) TRADE OR BUSINEG ~ 1 yr. wlin ETB < tyr. , > 10 days wlin SPECIAL CONSIDERATIONS © Estate - properties of decedent vidual taxpayer w not a taxpayer (income of the properties —» tavable ty here) peor‘s residence Dividends 1 by D¢ —_——____ earned within 1 by FC - RFC + apply pre-dominance. tect GI-PH_ _ oj, _, in 3-year peried preceding the GI = World Year of dividend declaration mvs via — ab vn L ine Gon Sar 2 S07/- X Dividends —> within % so). ————+rentive dividend received is earned abroad! > NREC ————> earned abroad Service ———+ place of performance Of the location of the mine Farming location of farm Werchandising ———> place of sale Manufactaring place of production and place of 2 months) V taxpayer has no annual accounting books v taxpayur does mot keep book wv taxpayer is an individual = endc on any ay Other than December 3! oS eA lets than B months v Death ef a taxpayer ¥ NewN erganived bucinecs Y Dissolution of business Y Change in accounting period by corporate taxpayers (itd quota Y Termination ef accounting peritd by Ye CIR ACCOUNTING METHODS €) Hybrid basic Accrual wi af bate Pt Principle 1: Advanced Income iStaxable upon receipt | (Advanced income, beg.) (Prepaid bxp,beq-) Gave of service only) "erstsCiits ry Sheen” =ne| Advanced income, end id Exp rend. Principle 2: Prepayments are nondeductible Accrual 1, taxable, Cath votis Nidarare Cpa open see SO EES Accrwal basis: Cath Income xe Cash expente ve Acerued (uncollected) income xx Accrued (unpaid) expence ~ Advanced income ody Amortization of prepayments and Gross wnrome xe depreciation of capital experditurer xv == Deductions cm (hn basis: Cath Income rd Cash expense oo Advanced income el Amortization of prepayments and Gross Meome depreciation of capital expenditures xv = Deductions x v. Sale of personal (movable) property by o dealer Y Casual sale of personal property where: # selling price ic over P 1,000 + inital payment does wot exceed &t'J. of the selling price * property is of a Find which weuld be included in he taxpnjerté inventory Hf on hand ot the cloie of 4axable year V_ Sale of real (immovable) property where initial payment does not exceed at"). of the selling priceIwithal payment Instaliment payment y Gnss Portion GI taxable Downpayment we Selling price, Income fir the period Indatlment im the year of male xe + w) limit 4 if initial paymen is & 25 7 of celling price Initial poy ment Caller =a Dealey | Non-dealer always | with g movable | altowed | liait : © With ¥ with | ivervable Airwit lint ~ alternative when installment metnod ic not available = mon-interest bearing note is teceived ar contideration in a cale ~ grocs income ke computed based on the precent value (diccounted value) of a mote receivable 7 ee value - prutnt valuc = interest Income —* ¢eported tn future taxable poried 3) Lang: Term constwaion Contracts + estimated gross income fmm conitraction 1s reported bated on the percentage of cAmplesion of constuction prject 1 ~ enipet method bated on engineeiing survey if preeribed by nike ye 4 Yer Contract price Multiply by: ‘f of campletion Conthuchon Revenve lees: Conchoction revenue tn prior year Construction Revenue thit year Lace. Expense during the year Canthmckon gine income EE animals <= cash basic S acemal basic unps Sire N bath (ea a cemal basis long-term «+ Perennial ( yield harvett though yeart) + ER ae Pa ar cad mori ‘one-time Cpr (harvested once after Several years) = eri x accounting period ee V accounk ywetinod | ees AS prceeds of nawedt Ine z+ made by lectee. ~ Will benefit the leccor when the wieful life extends beyond the leace term = report the income at time When such imprvements are com pleted tprad ovr the life vt the lease the eshmated depreciated vale of Depre ciate value *f tearenoid impnvement = cod of x _Exeecs witha fife over lease term: imprwement Weeful fe of the imprvement er Yes. of wage Aliecation Cont eesee a ale x Total ast = ex “lester be ble x Total vat = cle dee et ot eo ‘otal e SW eprend ut tin year of cnepletin at the Impremcnd) at year of ease ttm INUOME TAX COMPLIANCE TWO-FOLD OBLIGATIONS: *) Payment of 4a undor the SeH-auetment method 2) Remit nce of WitiolAing est | TYPES oF INCOME TAX RETMENS 4) Form 1901 for Individwals ») Form tao fir Garporation 3) ©) Farm 1700 fir cates of real property b) Farm 1909 fir gala of thee TYPES OF WITHHLDINU TAX RETMRN( —» not ITR ~* deduction fom the income of the recipient ©) Withholding tae on compensation —» salaries of empleycer 2) Final withholding tax ~* certain patti ve income 3) Expanded nithhwiding tan — Cuinin iteme of regular aside from compenson iname 4 Information Retain PENALTIEs FOR WoN- COMPLIANCE ‘Basic tax a ) be nes ari eras (12h nin Wo ARE REQUIRED TH DEDUCE WirHHOLOINL TAX ? ) Individual engaged in busines or exercise of a prifestion 1» Grporations Cwhether or wet engaged in nuined!) Ls watit + baie asrerted tae hat Ft ne + bated on actual number of days over Gury = baied On schedule zlexyx CLASSIFICATIONS OF TAXPAYERS FIR AOMIMCTRATION PURPICES 1») Large taxpayer —+ eFs —> BIR Large Taxpayer Service Divicion < 4) Non-large taxpayers —> RDO- place of head sffice/ employment Le manual, eBieFvms, cfr national officeCRITERIA FOR LARGE TAXPAYERS vat — 200k Ina quarter \iicome tac Excite tay ] > 1M in one year withholding 44 Malet (Revenue —> > [B/ycar Purchases > S00M/ year Net worth — > 300M/year ® 7 identified as large corporation by sec : Y. Top 5.000 individual tmepayer ] will receive notice fam BIK V Top 20,000 corporation WHERE DOES NON LARGE TAXPAYER FILE fax RETMRNL 7 1) Authorined agent bank 2) poo 3) Gllecion Agent 4) Duly authori zed Treatmvor of city|municipatiny (legal rexidence | place of business) 5) honrevident —> office of Commicaoner PAYMENT DF INCOME TAX GR: \nmp Gain — outaght XPN: fax due > 2,000 —+ Inctallment Type of Income jax Individual Corpiraie = RIT ouhight | inctatlment Dutright_ony + Cor oubight | installment oubight’] inctatiment DETERMINING NON COMPLIANCE Ww] TAY OBL CATIONS parties Tequila puthoul of inventies — oct af cushmer Nelworr METHOD ~ Jeet of the exictence of income net cpecifically dléclored - CAN Prsvibte Gres Income = Purtanal Expenditures + Change in Networtn® | Asset, tnd 8 Uae tnd we = net worth, end vx Actet, beg. €x*) - Liab, beg (oe) = tt Worth, beg, We x = - = change i net worth = = Teen 3 NA, beg NA, end 1% Sowveeg. out Flows: HEF Butinecs exp. 1 inheritance Peveanal ey. income Donation 1! Y