Income Tax on INDIVIDUALS – Exercises

ANSWERS
1. Pure compensation earner. Jeff is a resident citizen and works as an employee here in the Philippines. His income is as follows:

Compensation income – Philippines 1,380,000.00

13th month pay and other benefits 120,000.00

a. How much is the tax due?

Compensation income – Philippines 1,380,000.00

13th month pay and other benefits 120,000.00
Total compensation income 1,500,000.00
Less: Non-taxable benefits (13th month pay ) (90,000.00)
Taxable compensation income 1,410,000.00

Basic 130,000.00
Excess 30% x (1,410,000 – 800,000) 183,000.00
Tax due 313,000.00

b. Is Jeff allowed itemized deductions or the 40% optional standard deduction (OSD)? No. Pure compensation earners are not qualified for
itemized deductions nor the 40% OSD.

c. Is Jeff allowed to use the optional 8%? To follow after midterms.

2. Business/Professional income earner. Greg only derives income from his business, a hardware. He earned or incurred the following
in 2018:

Gross sales 2,500,000.00

Itemized deductions
Deductible expenses 1,000,000.00
Deductible taxes 470,000.00
Deductible bad debts 100,000.00
Deductible interest 30,000.00

a. If he chose to be taxed based on the tax table and itemized deductions, how much is the tax due?

Gross sales 2,500,000.00

Less:
Deductible expenses (1,000,000.00)
Deductible taxes (470,000.00)
Deductible bad debts (100,000.00)
Deductible interest (30,000.00)
Total taxable income 900,000.00

Basic 130,000.00
Excess 30% x (900,000-800,000) 30,000.00
Tax due 160,000.00

b. If he chose to be taxed based on the tax table and 40% optional standard deduction (OSD), how much is the tax due?

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 Income Tax on INDIVIDUALS – Exercises
ANSWERS
Gross sales 2,500,000.00
Less: 40% OSD
Gross Sales x 40%
2,500,000 x 40% = (1,000,000.00)
Total taxable income 1,500,000.00

Basic 130,000.00
Excess 30% x (1,500,000-800,000) 210,000.00
Tax due 340,000.00

c. If he signified to be taxed at 8%, how much is the tax due? To follow after midterms.

3. Mixed income earner. Mario is a mixed income earner. He earned employee compensation and business income in 2018 as follows:

Compensation income
Compensation income 1,380,000.00
13th month pay and other benefits 120,000.00
Business income
Gross sales 2,500,000.00
Itemized deductions
Deductible expenses 1,000,000.00
Deductible taxes 470,000.00
Deductible bad debts 100,000.00
Deductible interest 30,000.00

a. If he chose to be taxed based on the tax table and itemized deductions, how much is the tax due?

Compensation income
Annual compensation income 1,380,000.00
13th month pay and other benefits 120,000.00
Total compensation income 1,500,000.00
Less: Non-taxable benefits (13th month pay ) (90,000.00)
Taxable compensation income 1,410,000.00

Business income
Gross sales 2,500,000.00
Less:
Deductible expenses (1,000,000.00)
Deductible taxes (470,000.00)
Deductible bad debts (100,000.00)
Deductible interest (30,000.00)
Taxable business income 900,000.00

Total taxable income (compensation + business) 2,310,000.00

Basic 490,000.00
Excess 32% x (2,310,000 – 2,000,000) 99,200.00
Total income tax due (compensation + business) 589,200.00

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 Income Tax on INDIVIDUALS – Exercises
ANSWERS
b. If he chose to be taxed based on the tax table and 40% optional standard deduction (OSD), how much is the tax due?

Compensation income
Annual compensation income 1,380,000.00
13th month pay and other benefits 120,000.00
Total compensation income 1,500,000.00
Less: Non-taxable benefits (13th month pay ) (90,000.00)
Taxable compensation income 1,410,000.00

Business income
Gross sales 2,500,000.00
Less: 40% OSD
Gross Sales x 40% OSD
2,500,000 x 40% = (1,000,000.00)
Taxable business income 900,000.00

Total taxable income (compensation + business) 2,910,000

Basic 490,000.00
Excess 32% x (2,910,000 – 2,000,000) 291,200.00
Total income tax due (compensation + business) 781,200.00

c. If he signified to be taxed 8%, how much is the tax due? To follow after midterms.

4. Business/Professional income earner. To follow after midterms.

5. Business/Professional income earner. To follow after midterms.
6. To follow after midterms.

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