Taxpayers Taxpayers
Allowed to Use OSD Not Allowed to Use OSD
Resident Citizen Nonresident alien engaged in trade or business
Nonresident Citizen Nonresident alien not engaged in trade or business
Resident Alien Nonresident foreign corporation
Taxable Estate and Trusts
Partnership
Domestic Corporation
Resident Foreign Corporation
Confused whether to use Gross Sales or Gross Receipts:
Use Gross Sales, if the accounting method is accrual basis. Gross Sales is the cash sales and charge sales transaction from the customers during the taxable year.
Use Gross Receipts, if the accounting method is cash basis. Gross Receipts is the cash sales transaction from the customers during the taxable year. However, in the case of seller of services, the term Gross Receipts is used even if the accounting method is accrual basis.
Confused whether to use Cost of Sales, Cost of Goods Manufactured & Sold, or Cost of Services:
Use Cost of Sales (or Cost of Goods Sold), if the business is seller of goods.
Cost of Sales for trading or merchandising business - include the invoice cost of goods sold, freight in, import duties, and insurance.
Use Cost of Goods Manufactured and Sold, if the the business is producer or manufacturer of goods.
Cost of Goods Manufactured and Sold for manufacturing business - include production costs such as raw materials, direct labor, overhead, insurance, freight in, and other costs related to the production of the goods.
Use Cost of Services, if the business is seller of services.
Difference between Gross Income and Net Income:
Gross Income is the result when the cost of sales, sales return, discount and allowances are deducted from Gross Sales or Gross Receipts.
Net Income is the result when the operating expenses are deducted from Gross Income.
Comparison of Individual, Partnership, and Corporation in computing the net taxable income using optional standard deduction:
* Tax Table for Individuals Earning Purely Compensation Income and Individuals engaged in Business and Practice of Profession
Amount of
Net Taxable Income Tax Rate
Over But Not Over
P10,000 5%
P10,000 30,000 P 500 + 10% of the excess over P 10,000
30,000 70,000 2,500 + 15% of the excess over P 30,000
70,000 140,000 8,500 + 20% of the excess over P 70,000
140,000 250,000 22,500 + 25% of the excess over P140,000
250,000 500,000 50,000 + 30% of the excess over P250,000
500,000 125,000 + 32% of the excess over P500,000 in 2000 and onward
Note: When the tax due exceeds
P2,000.00, the taxpayer may elect to pay in two equal installments, the first
installment to be paid at the time the return is filed and the second
installment 15 of the same year at on or before July the Authorized Agent Bank
(AAB) within the jurisdiction of the Revenue District Office (RDO) where the
taxpayer is registered.
Personal Exemption:
Personal Exemption is allowable deduction from General Professional Partnership but not from General Co-Partnership and Corporation. Shares received by the General Co-Partnership is considered a passive income in the form of a dividend income which is subject to final tax.
General Professional Partnership involves in the exercise of profession.
General Co-Partnership involves in the operation of business for profit.
The distribution of shares by the partnership to the partners:
Note: The partnership withheld tax from the partner's share to be remitted to the BIR using BIR Form 1601-F (monthly remittance of final tax withheld - capital gains tax and passive income tax (excluding interest income tax)) and BIR Form 1601-E (monthly remittance of creditable expanded tax withheld).
Note: Creditable Tax for General Professional Partnership - 10% if income not exceed P720,000; 15% if income exceeds P720,000.
This is how to compute the basic tax due of the partners of the General Professional Partnership:
General Professional Partnership
Partner A Partner B
( 60% ) ( 40% )
Net Income Before Tax
(3,000,000 x 60%) P1,800,000 P1,200,000
(3,000,000 x 40%)
Less: Personal Exemption
Basic Exemption ( 50,000) ( 50,000)
Additional Exemption
(ex. 6 qualified dependents
but only 4 are allowed)
(25,000 x 4) ( 100,000) ( 100,000)
Net Taxable Income P1,650,000 P1,050,000
Tax on:
500,000 125,000 125,000
(1,650,000-500,000=1,150,000)
(1,150,000 x 32%) 368,000
(1,050,000-500,000=550,000)
(550,000 x 32%) 176,000
Income Tax 493,000 301,000
Less: Creditable Withholding Tax ( 270,000) (180,000)
Income Tax Due and Payable P 223,000 P 121,000
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Filing of Income Tax Return:
Individual who opted to use Optional Standard Deduction is not required to file an Income Tax Return but required to keep records pertaining to his gross sales or gross receipts.
Corporation who opted to use Optional Standard Deduction is required:
a) to file Income Tax Returns together with the financial statements - using the BIR Form 1702Q (Quarterly Income Tax Return) and BIR Form 1702 (Annual Income Tax Return)
b) to keep records pertaining to gross income.
Both General Professional Partnership and General Co-Partnership are required to file Income Tax Returns using the BIR Form 1702Q (Quarterly Income Tax Return) and BIR Form 1702 (Annual Income Tax Return).
The Partners of General Co-Partnership are not required to file Income Tax Return since their dividend income is subject to final tax.
The Partners of General Professional Partnership are required to file the Income Tax Returns since their income is subject to basic tax (5% to 32%) using BIR Form 1701Q (Quarterly Income Tax Return) and BIR Form 1701 (Annual Income Tax Return).
References:
Optional Standard Deduction - ftp://ftp.bir.gov.ph/webadmin1/pdf/43181rr%20no.%2016-2008.pdf
BIR Forms - http://www.bir.gov.ph/lumangweb/form_itr.html
