INCOME TAXATION

PRELIM
Taxation Of Individuals
MIXED INCOME EARNER
The income tax rates applicable are:

1. The compensation income shall be subject to the tax

rates prescribed under Section 24(A)(2)(a) of the Tax
Code, amended; AND

2. The income from business or practice of profession

shall be subject to the following:
MIXED INCOME EARNER
A. If the gross sales/receipt and other non-operating
income do not exceed the VAT threshold, the
individual has the option to be taxed at:

a.1 Graduated income tax rates prescribed under Section

24(A)(2)(a) of the Tax Code, as amended; OR

a.2 Eight percent (8%) income tax rate based on gross

sales/receipts and other non-operating income in lieu of
the graduated income tax rate and percentage tax under
Section 116 of the Tax Code, as amended.
Pro-forma Computation
Mixed Income – Graduated and 8% GI tax rates
a.1
Compensation taxable income XXXX
Tax due (Using graduated rates) XXXX
a.2
Business taxable income XXXX
Tax due (Using 8% rate) XXXX

Total tax due XXXX

MIXED INCOME EARNER
B. If the gross sales/receipt and other non-operating
income exceeds the VAT threshold, the individual shall
be subject to the graduated income tax rates as
prescribed under Section 24(A)(2)(a) of the Tax Code,
as amended.

Note: The P250,000 exemption is not applicable to

mixed income earners since it is already incorporated
in the first tier of the graduated income tax rates
applicable to compensation income.
Pro-forma- Computation
Mixed Income – Graduated rates for both income

Pro-forma compensation income XXXX

Pro-forma business income XXXX
Total taxable income XXXX

Tax due (Using graduated tax rates) XXXX

Illustration
Mr. MAG, Financial Controller of JAC Company

Annual compensation 1,500,000

(inclusive of 13th mo. pay but net of
120K contribution to SSS and Philhealth)
Gross sales of owned convenient store 2,400,000
Cost of sales 1,000,000
Operating expenses 600,000
Non- operating income 100,000

Compute the tax due using:

1. Graduated tax rates
2. 8% of gross income for business
Solution – Part 1
1. Sample using purely graduated income tax rate

Compensation income P1,500,000

Less: Maximum allowed deductions 90,000
Taxable compensation income 1,410,000
Gross sales 2,400,000
Less: Cost of sales 1,000,000
Gross income 1,400,000
Less: Operating expenses 600,000
Income from operation 800,000
Add: Non-operating income 100,000 900,000
Total Taxable Income 2,310,00
Solution – Part 2
Tax Due Computation

on 2 million pesos 490,000

on excess(2,310,000-2,000,000) X 32% 99,200
Total tax due 589,200

In addition to income tax Mr. MAG has to pay

percentage tax of P72,000 (P2,400,000 x 3%)
Solution – Part 1
2. Using graduated income tax rate for compensation and eight
(8%) for business income

Compensation income 1,500,000

Less: Maximum allowed deductions 90,000
Taxable compensation income 1,410,000

Tax due for compensation income

on 800,000 130,000
on excess (1,410,000-800,000)X 30%= 183,000
313,000
Solution – Part 2
Business income

Gross sales 2,400,000

Add: Non-operating income 100,000
Taxable business income 2,500,000
Multiply by tax rate 8%
Tax due 200,000

TOTAL TAX DUE FROM MR. MAG

from compensation 313,000
from business 200,000
TOTAL INCOME TAX DUE 513,000
Problem Exercise
RESIDENT CITIZEN TAXPAYER:

GROSS COMPENSATION – PHILIPPINES 750,000

INCOME FROM SINGAPORE 250,000
a) Gross compensation includes 13th month pay of P50,000 and P 45,000 bonus during the
year.
b) b) Annual mandatory deduction from his salary amounted to P 24,000 only.

Business financial information for 2018 are as follows:

GROSS RECEIPTS/SALES (net of VAT) 2,750,000

NON-OPERATING INCOME 250,000
COST OF SALES/SERVICES 1,650,000
BUSINESS/OPERATING EXPENSES 900,000

Requirement:
Compute the total taxable income and tax due using graduated tax rate.
Problem Exercise
RESIDENT CITIZEN TAXPAYER:

GROSS COMPENSATION – PHILIPPINES 750,000

INCOME FROM SINGAPORE 250,000
a) Gross compensation includes 13th month pay of P50,000 and P 45,000 bonus during the
year.
b) b) Annual mandatory deduction from his salary amounted to P 24,000 only.

Business financial information for 2018 are as follows:

GROSS RECEIPTS/SALES (net of VAT) 2,750,000

NON-OPERATING INCOME 250,000
COST OF SALES/SERVICES 1,650,000
BUSINESS/OPERATING EXPENSES 900,000

Requirement:
Compute the total taxable income and tax due using optional standard deduction (OSD).
Problem Exercise
RESIDENT CITIZEN TAXPAYER:

GROSS COMPENSATION – PHILIPPINES 750,000

INCOME FROM SINGAPORE 250,000
a) Gross compensation includes 13th month pay of P50,000 and P 45,000 bonus during the year.
b) b) Annual mandatory deduction from his salary amounted to P 24,000 only.

Business financial information for 2018 are as follows:

GROSS RECEIPTS/SALES (net of VAT) 2,750,000

NON-OPERATING INCOME 250,000
COST OF SALES/SERVICES 1,650,000
BUSINESS/OPERATING EXPENSES 900,000

Requirement:
Compute the total taxable income and tax due assuming the taxpayer opted for 8% tax on gross
sales/receipts.
The End