Question

Taxation on Individuals: Compensation and Business Income
Kur da Pio has asked you to prepare his income tax return for the year ended (current year).
The following pertains to his compensation income and business income.
	a	Business income from his mini-department store attended to by his wife						455,000
	b	Monthly salary as supervisor in a manufacturing company						45,000
	c	13th month salary for the current year						45,000
	d	Interest income from bank deposits for four quarters (net of withheld tax)						2,566
	e	Living quarter & meals during overtime jobs ( for convenience of employer)						27,600
	f	Monetized unused vacation leave payment for 10 working days						15,000
	g	Medical cash allowance to dependents (P125 per month)						1,500
	h	Rice subsidy per month (good variety)						1,500
	i	Uniforms and clothing allowance for the year						4,000
	j	Actual medical assistance on healthcare needs and check-ups						10,000
	k	Laundry allowance per month						300
	l	Employee achievement award for safety achievement with monetary value						10,000
	m	Christmans gifts and company anniversary celebrations (P2,500 each)						5,000
	n	Other benefits not included as part of de minimis (from E to L)						12,000
	o	14th month bonus						45,000
	p	Advance rental deposit received under property lease						25,000
	r	Royalty received for property which produces timber						30,000
	s	Third prize award from a commercial contest						10,000
	t	Damage recovered in a patent infringement suit						45,000
	u	Lotto winnings						12,000
	v	Cost of Sales (80% of Business income for the year)					80%	364,000
	w	Business expenses - allowed as deductions						45,500
	x	Taxes - allowed as deduction (not part of business expense)						18,200
	y	Bad Debts - allowed as deduction (not part of business expense)						4,550
	z	Charitable contributions to accredited associations for religious purposes						10,000
	aa	The taxpayer is married with five (dependent) children - refer to (latest) basic & personal exemption
	bb	Premium paid on health and hospitalization insurance						2,400
	cc	Withheld tax on compensation (by his employer) during the year						81,000
Instructions: The answer sheet outlined below is your guide to answering these questions
	1	Gross Business Income (prepare your schedule of computation below)
	2	Gross Compensation Income (prepare your schedule of computation below)
	3	Other Income received (prepare your schedule of computation below)
			TOTAL GROSS INCOME (as computed for your guide)					788,000
	4	Less: Total allowed business deductions (excluding charitable contributions) - schedule
	5	Less: Charitable contribution allowed based on 10% limit (as computed for your guide)						2,275
	6	Less: Basic personal exemption (prepare schedule of computation below)
	7	Less: Additional exemptions (prepare schedule of computation below)
	8	Less: Premium paid on health and hospitalization insurance (if any)
			TOTAL ALLOWABLE DEDUCTIONS (as computed for your guide)					220,525
	9	NET TAXABLE INCOME
	10	TOTAL TAX DUE			[(Refer to Sec 24 (A)]
	11	TOTAL TAX STILL PAYABLE
Instructions: Using BIR form 1701, transfer your DETAILED computations/anwers indicated
			above to the proper columns as indicated.
		NOTE: ALL YOUR ANSWERS MUST BE BASED ON LATEST "TRAIN" LAW…
		IF THE QUESTION IS NO LONGER APPLICABLE IN "TRAIN" LAW EXPLAIN THE DIFFERENCE and
		INDICATE "NO LONGER APPLICABLE" as the case maybe…

Answer 1

Calculation of Taxable Income and Tax
Head (a)	Business Income	455,000.00
	BUSINESS INCOME	455,000.00
Head (b)	Salary Income	45,000.00
Add:	Living qtr meals	27,600.00
Add:	Vacation leave payment	15,000.00
Add:	Medical cash allowance	1,500.00
Add:	Uniform & clothing allowance	4,000.00
Add:	Laundry allowance	3,600.00
Add:	Employee achievement award	10,000.00
	SALARY INCOME	106,700.00
Head (c)	Other Income
	Interest received	2,566.00
	Gifts	5,000.00
	Other benefits	12,000.00
	Bonus	45,000.00
	Third award	10,000.00
	Damage in patent recovered	45,000.00
	Rice subsidy	18,000.00
	Bad-debts disallowed	4,550.00
	Lotto winning	12,000.00
	OTHER INCOME	154,116.00
Head (d)	Rental Income
	Deposit	25,000.00
	RENTAL INCOME	25,000.00
Head (e)	Professional & royalty
	Royalty income	30,000.00
	PROFESSIONAL INCOME	30,000.00
	GROSS INCOME	788,000.00
less:	Deductions allowed
	Cost of sales	- 364,000.00
	expenses	-   45,500.00
	Charitable cont.	-   10,000.00
	Premium paid	2,400.00
less:	Deductions allowed	220,525.00
	Taxable Income	567,475.00
	Tax Payable
	Base rate	30,000.00
	25% of excess of 400000	41,868.75
	TOTAL TAX PAYABLE	71,868.75
	WITHHELD TAX	81,000.00
	TAX REFUND	9,131.25