BAINCTAX

Income Taxation
TAY2022

Regular Income Taxation

Overview
 REGULAR INCOME TAX
As discussed in the previous modules, the income tax scheme of regular income taxation is a catch basin for all those items of
income which are not specifically within the scopes of final income taxation and capital gains taxation.

CHARACTERISTICS
The following are the characteristics of this income tax scheme.

The regular income tax applies to all items of income except those that are subject to final tax, capital
General Coverage
gains tax, and special tax regimes.
The regular tax is an imposition on residual profits or gains after deductions for expenses and personal
Net Income Taxation
exemptions allowable by law.
The regular income tax applies on yearly profits or gains. The gross income and expenses of the
Annual Income Tax taxpayer are measured using the accounting methods adopted by the taxpayer and are reported to the
government over the accounting period selected by the taxpayer.

Regular Income Taxation Overview page 1

 Most items of regular income are subject to creditable withholding tax (CWT). These creditable
Creditable
withholding taxes are advanced taxes that must be deducted against regular tax due in computing the
Withholding Taxes
tax still due to the government.
Progressive or The NIRC imposes a progressive tax on the taxable income of individuals while it imposes a flat or
Proportional Tax proportional tax of 25%/20% upon the taxable income of corporations.

REGULAR INCOME TAX MODEL

The formula below illustrates the bird’s eye view of the regular income tax scheme. It is to be noted that extensive discussions
of each item in the model will be included in the succeeding modules.

The gross income consists of all other items of income not taxed under the Final Taxation and
Capital Gains Taxation and other special tax regimes. Some items of income, however, are
Gross Income xx
excluded or exempted by law, treaty or contract from taxation. Normal items of gross income are
Compensation Income, Business/Professional Income and Capital Gains.
Allowable deductions, or simply “deductions,” are expenses in the conduct of business or exercise
Allowable
(xx) of profession. It should be noted that only business expenses are allowed for deductions,
Deductions
considering limits and caps given by law.

Regular Income Taxation Overview page 2

 Taxable Income xx This is the basis of the income tax due.
The progressive tax table below shall be used for individual taxpayers and the 25%/20% income
tax rate for corporate taxpayers. In computing the tax due for individuals, the taxable income is
located on the applicable bracket of the income tax table to know the basic tax and the additional
tax rate.
Taxable Income
Basic Tax Additional Tax
Over But Not Over
Tax Due xx
0 250,000 - -
250,000 400,000 - 20% of excess over 250,000
400,000 800,000 30,000 25% of excess over 400,000
800,000 2,000,000 130,000 30% of excess over 800,000
2,000,000 8,000,000 490,000 32% of excess over 2,000,000
8,000,000 - 2,410,000 35% of excess over 8,000,000
Tax credits are subtracted not from taxable income, but directly from a person’s tax liability; they
Tax Credits (xx) therefore reduce taxes peso for peso. As a result, credits have the same value for everyone who can
claim their full value. As one of the characteristics of regular taxation, it is subject to creditable

Regular Income Taxation Overview page 3

 withholding taxes. As such, any withheld taxes from payors of income may be used as tax credits
to be deducted to the Tax Due. Tax credits usually arise from creditable withholding taxes.
Tax Payable/ This is the net amount of the tax liability to the BIR. If the tax credits exceed the tax due, the
xx
(Overpayment) overpayment may be refunded or used as tax credits in the succeeding periods.

Illustration 7.1 REGULAR INCOME TAX MODEL

Tim Maray has a total income of P1,240,000 during the taxable year. Of the said amount, P110,000 were subject to final tax and
P80,000 were subject to capital gains tax. Of the remaining amount, P50,000 are considered exempt. He also incurred P520,000
worth of expenses but P40,000 was not allowed for deduction. Several of the income were subjected to creditable withholding
taxes which reduced the receipts of income to P1,229,000.
Following the regular income tax model, the taxable income would be:
Gross Income (1,240,000 – 110,000 – 80,000 – 50,000) 1,000,000
Less: Allowable Deductions (520,000 – 40,000) 480,000
Taxable Income 520,000

Regular Income Taxation Overview page 4

 Scenario 1: Tim Maray is an individual Scenario 2: Tim Maray is a corporation
The tax payable, basing on the third bracket,, would be: The tax payable would be:
Basic Tax 30,000 Taxable Income 520,000
Additional Tax (25% x 120,000) 30,000 Tax Rate 25%
Tax Due 60,000 Tax Due 130,000
Less: Tax Credits (1,240,000 – 1,229,000) 11,000 Less: Tax Credits 11,000
Tax Payable 49,000 Tax Payable 119,000

REGULAR INCOME TAX RETURNS

The following are the required returns for taxpayers.

Form Code Type of Taxpayer

1700 Purely Employed Individuals
1701A Individuals purely in Business, using Itemized Deduction, OSD or opting to the 8% Optional Income Tax
1701 Mixed Income Earning Individuals, Estates and Trusts
1702RT Corporations subject only to the 30% Regular Income Tax

Regular Income Taxation Overview page 5

 1702MX Corporations subject to Special or a combination of tax rates
1702EX Corporations that are exempt with no tax due

It should be noted that exempt corporations are required to report their results of operations through BIR Form 1702-EX even if
they do not have taxable income. They are mandated to itemize their deductions in their income tax return. The rule is apparently
intended to assist the BIR in monitoring compliance of exempt corporation with their withholding tax obligations and to provide
for a mechanism to identify income earned by third parties.

Exempt corporations with gross income subject to the regular corporate income tax or special rate shall file BIR Form 1702-MX.

Individual ITR Line Items

You are encouraged to familiarize yourself with the structure of the income tax return via the Technical Modules to facilitate
understanding in the succeeding modules.

Taxable Compensation Income

Gross Compensation Income xx
Exempt/Non-Taxable Compensation Income (xx) xx
Taxable Business Income

Regular Income Taxation Overview page 6

 Net Sales/Revenues/Receipts/Fees xx
Cost of Sales/Services (xx)
Gross Income/(Loss) from Operations xx
Allowable Deductions (xx)
Net Income/(Loss) from Operations xx
Other Non-Operating Income xx xx
Total Taxable Income xx
Tax Due xx
Tax Credits (xx)
Tax Payable/(Overpayment) xx

For purely self-employed individuals, the portion for compensation income is ignored. Same is true for purely employed
individuals on the portion for business income.

Illustration 7.2 INDIVIDUAL ITR

Chutimon, an individual taxpayer, reported the following for the taxable year.
 Gross compensation of P140,000, P20,000 of which was exempt.

Regular Income Taxation Overview page 7

  Winnings from PCSO Lotto, P60,000.
 Capital gain of jewelries sold, P50,000.
 Gross income from merchandising business, P470,000.
 Expenses of the merchandising business, P210,000, P25,000 of which are non-deductible.
 Prior year’s excess credits, P10,000.
The tax payable would be computed as follows:
Taxable Compensation Income
Gross Compensation Income 140,000
Exempt/Non-Taxable Compensation Income 20,000 120,000
Taxable Business Income
Gross Income/(Loss) from Operations 470,000
Allowable Deductions 185.000
Net Income/(Loss) from Operations 285,000
Other Non-Operating Income 50,000 335,000
Total Taxable Income 455,000

Regular Income Taxation Overview page 8

 Tax Due 43,750
Tax Credits 10,000
Tax Payable/(Overpayment) 33,750

Quarterly Return
The quarterly return is mostly similar to that of the annual return. The difference is that the amounts for the computation of the
net income/(loss) from operations only include those arising from the period the return covers.

The quarterly return is cumulative in amount. This means that it computes the income tax due based on the cumulative taxable
income as of the close of the taxable quarter. This is why it adds the reported taxable income from the previous quarterly returns
filed during the year.

Also take note that only the business income is included in the quarterly returns. The taxable compensation income is only
reported in the annual income tax return.

Illustration 7.3 QUARTERLY ITR

Pat, a mixed income earner, reports the following for each quarter of 2020.
Item First Second Third Fourth
Taxable Compensation 90,000 90,000 90,000 90,000

Regular Income Taxation Overview page 9

 Gross Income from Business 240,000 160,000 180,000 380,000
Allowable Deductions 90,000 80,000 80,000 120,000
Non-Operating Income 10,000 15,000 40,000 10,000
The only sources of tax credit are the timely tax payments made every quarter and the income tax withheld from compensation
amounting to P22,000.
The income tax returns to be filed would carry the following amounts:
Item Q1 Q2 Q3 Annual
Gross Income from Business 240,000 160,000 180,000 960,000
Allowable Deductions 90,000 80,000 80,000 370,000
Net Income from Operations 150,000 80,000 100,000 590,000
Taxable Income from Previous Quarter/s - 160,000 255,000 -
Non-Operating Income 10,000 15,000 40,000 75,000
Total Taxable Business Income to Date 160,000 255,000 395,000 665,000
Taxable Compensation Income - - - 360,000
Total Taxable Income 160,000 255,000 395,000 1,025,000
Tax Due - 1,000 29,000 197,500

Regular Income Taxation Overview page 10

 Tax Credits - - 1,000 51,000
Tax Payable - 1,000 28,000 146,500

Corporate ITR Line Items

The tax model can be presented in the form below to illustrate it in practical sense.

Net Sales/Receipts/Revenues/Fees xx
Cost of Sales/Services (xx)
Gross Income from Operation xx
Other Taxable Income Not Subjected to Final Tax xx
Total Taxable Income xx
Allowable Deductions (xx)
Net Taxable Income/(Loss) xx

Tax Due xx
Tax Credits (xx)
Tax Payable/(Overpayment) xx

Regular Income Taxation Overview page 11

 Illustration 7.4 CORPORATE ITR
Assume Chutimon from Illustration 7.2 is a corporate taxpayer and ignore the figures related to the compensation income.
The tax payable would be computed as follows:
Gross Income from Operation 470,000
Other Taxable Income Not Subjected to Final Tax 110,000
Total Taxable Income 580,000
Allowable Deductions 185,000
Net Taxable Income/(Loss) 395,000
Regular Corporate Tax Rate 25%
Tax Due 98,750
Tax Credits 10,000
Tax Payable/(Overpayment) 88,750

Quarterly Return
The difference of the quarterly and annual ITR for corporations is similar to that of individuals, except that there is no
compensation income.

Regular Income Taxation Overview page 12

 8% OPTIONAL TAX
Individual taxpayers have the option of availing the 8% optional tax as provided by RA 10963. It should be noted that the
taxpayer should signify that it chooses this option on the first quarterly income tax return and/or quarterly percentage tax return
for every year. Such election shall be irrevocable and no amendment of option shall be made for the said taxable year.

The taxpayer may opt to be taxed under the two schemes, provided that his gross sales/receipts and other
Purely Self- non-operating income do not exceed the P3,000,000 VAT threshold:
Employed 1. 8% of gross sales/receipts and other non-operating income in excess of P250,000 in lieu of graduated
Individuals rates and percentage tax; or
2. Graduated rates
If the individual taxpayer earns compensation income aside from its exercise of profession, trade or
business, he shall have no choice but to be taxed at the graduated rates on its compensation income. Its
Mixed-Income business income, however, may be opted to be taxed at the following schemes, provided that his gross
Earners sales/receipts and other non-operating income do not exceed the P3,000,000 VAT threshold:
1. 8% of gross sales/receipts and other non-operating income in lieu of graduated rates and percentage
tax; or

Regular Income Taxation Overview page 13

 2. Graduated rates
It should be noted that the P250,000 exemption is not deducted on the tax base for the 8% preferential tax
since it is already availed on the tax on compensation income using the graduated rates.

Illustration 7.5 8% OPTIONAL TAX

Chanon, a non-VAT individual taxpayer, reported the following for the year 2021.
 Gross sales of P1,800,000
 Cost of sales of P860,000
 Allowable deductions of P220,000
Scenario 1: Chanon chooses the 8% optional rate Scenario 2: Chanon chooses the graduated rates
Gross Sales 1,800,000 Gross Sales 1,800,000
Exemption Threshold 250,000 Cost of Sales 860,000
Basis for 8% 1,550,000 Gross Income 940,000
Optional Rate 8% Allowable Deduction 220,000
Income Tax Due 124,000 Taxable Income 720,000
Income Tax Due (based on PTT) 110,000

Regular Income Taxation Overview page 14

 Percentage Tax Due (1,800,000 x 1%) 18,000
Total Tax Due 128,000
Scenario 3: Chanon has taxable compensation of P420,000 and Scenario 4: Chanon has taxable compensation of P420,000 and
chooses the 8% optional rate chooses the graduated rates
Gross Sales 1,800,000 Taxable Business Income 720,000
Optional Rate 8% Taxable Compensation Income 420,000
Income Tax Due on Business Income 144,000 Total Taxable Income 1,140,000
Income Tax Due on Compensation 35,000 Income Tax Due (based on PTT) 232,000
(based on PTT) Percentage Tax Due (1,800,000 x 1%) 18,000
Total Income Tax Due 179,000 Total Tax Due 250,000

Breach of the VAT Threshold

Even if the flat 8% income tax rate option is initially selected, the taxpayer shall automatically be subject to the graduated rates
of tax when his gross sales/receipts and other non-operating income exceeded the P3,000,000 during the taxable year. In such
case, his income tax shall be computed under the graduated income tax rates and shall be allowed a tax credit for the previous
quarter/s’ income tax payment/s under the 8% income tax rate option.

Regular Income Taxation Overview page 15

 Illustration 7.6 BREACH OF VAT THRESHOLD
The following are the income of Jackie, a self-employed individual, for the first two quarters of the taxable year. It signified the
use of 8% optional rate on the first quarter return.
Item First Quarter Second Quarter
Gross Sales 800,000 2,500,000
Cost of Sales 400,000 1,200,000
Allowable Deductions 250,000 750,000
The tax due and payable for the first quarter is P64,000 computed by P800,000 x 8%.
Jackie exceeded the VAT threshold in the second quarter, therefore, he is not eligible for the 8% optional rate. His tax payable
for the second quarter is:
Total Gross Sales 3,300,000
Total Cost of Sales 1,600,000
Total Gross Income 1,700,000
Total Allowable Deductions 1,000,000
Total Taxable Income as of end of Q2 700,000

Regular Income Taxation Overview page 16

 Tax Due based on PTT 105,000
Tax Credits 64,000
Tax Payable 41,000

SPECIAL TAXPAYERS
The following are considerations for other taxpayers as discussed from the Module No. 3.

Estates
In addition to expenses as allowable deductions, distributions to heirs out of the income of the estate can be deducted from the
gross income of the estate. The amount deducted on the part of the estate will be taxable to the heir. Note that distribution of
the corpus (principal) is not deductible.

Illustration 7.7 ESTATE

Michaelo Johnson died on December 30, 2018 when its estate was valued at P30,000,000. The estate earned P3,500,000 gross
income during 2020. Expenses totalled P1,000,000. The heirs received half of the estate’s net income and P5,000,000 out of the
corpus.
The taxable income would be computed as:

Regular Income Taxation Overview page 17

 Gross Income 3,500,000
Allowable Deductions 1,000,000
Distribution of Income (2,500,000 /2) 1,250,000
Taxable Income 1,250,000
Tax Due/Payable 265,000
The P5,000,000 distribution is not deductible.

Trusts
The same rule on deduction is applicable to trusts. However, if several trusts account are made by a common grantor to a
common beneficiary, the accounts are consolidated and any discrepancy on the consolidated tax due is allocated to the accounts
pro-rata on the amount of taxable income.

Illustration 7.8 TRUSTS

Mr. Mapagbigay, assigned Mr. Alaga (Trust A) as the fiduciary of a trust account with Mr. Salamat as the beneficiary. Mr.
Mapagbigay also assigned Mr. Tiwala (Trust T) as fiduciary to another trust accounts with the same beneficiary. Data on the
two trust accounts are as follows:
Fiduciary Trust A Trust T

Regular Income Taxation Overview page 18

 Gross Income 800,000 2,700,000
Expenses 200,000 1,000,000
Income Distribution to Mr. Salamat 100,000 200,000
The allocation of the adjustment of tax due would be as follows:
Fiduciary Trust A Trust T Consolidated
Gross Income 800,000 2,700,000 3,500,000
Expenses 200,000 1,000,000 1,200,000
Income Distribution to Mr. Salamat 100,000 200,000 300,000
Taxable Income 500,000 1,500,000 2,000,000
Tax Due 55,000 340,000 490,000
Allocation of Allocated Income Tax
(490,000 x 500,000 / 2,000,000) 122,500
(490,000 x 1,500,000 / 2,000,000) 367,500
Tax Payable 67,500 27,500

Other Corporate Taxpayers

Refer to the summary below as to the taxability of partnerships, co-ownership and joint ventures.
Regular Income Taxation Overview page 19
 Rules Partnership Joint Venture Co-Ownership
General Rule Taxable Taxable Exempt
Exception Exempt: Exempt: Taxable:
if it is a general professional if formed for undertaking if income from the co-owned
partnership construction projects or engaging property is reinvested to other
in petroleum, coal, geothermal, income-producing properties or
and other energy operations ventures
pursuant to an operating
consortium agreement under a
service contract with the
government

Once a partnership, joint venture or co-ownership is not exempt, it will be taxable in the same manner as a corporation.

Regular Income Taxation Overview page 20

 GLOBALIZATION RULE
The income of mixed income earner from both sources is simply globalized or totaled. A negative net income or net loss when
deductions exceeds gross income from business or profession shall not be offset against taxable compensation income because
deductions are expenses of business or profession and are properly deductible only against gross income thereto whereas no
expense is deductible against taxable compensation income.

Illustration 7.9 GLOBALIZATION RULE

Consider the following taxpayers.
Item Andy Barry Cherry Danny
Compensation Income 300,000 - 300,000 300,000
Non-Taxable Compensation 30,000 - 30,000 30,000
Gross Business Income - 400,000 400,000 200,000
Allowable Deductions - 250,000 250,000 250,000
Other Income 20,000 20,000 20,000 20,000
Their taxable income are:

Regular Income Taxation Overview page 21

 Item Andy Barry Cherry Danny
Taxable Compensation Income 270,000 - 270,000 270,000
Net Business Income/(Loss) - 170,000 170,000 (30,000)
Total Taxable Income 270,000 170,000 440,000 270,000
The P30,000 net business loss of Danny shall not be deducted against the taxable compensation income but may be carried
over as NOLCO for the three succeeding years.

ROUNDING RULES
The requirement for entering centavos in the latest version of the income tax return (June 2013 version) has been eliminated. If
the amount of centavos is 49 or less, the centavos are dropped down. If the amount is 50 centavos or more, it is rounded up to
the next peso.

Hence, an amount for P100.49 shall be entered in the income tax return as P100. An amount of P100.50 shall be rounded to P101.

References:
Banggawan, R. (2019). Income Taxation. Pasay City: Real Excellence Publishing.
Valencia, G. & Roxas, E. (2016). Income Taxation. Baguio City: Valencia Educational Supply.
Reyes, V. (2019). Income Tax Law and Accounting under the TRAIN Law. Manila: GIC Enterprises & Co., Inc.
Ampongan O. (2018). Income Taxation. Mandaluyong City: Millennium Books, Inc.

Regular Income Taxation Overview page 22

 Self-Check!
Basing on your readings, answer the following questions.
1. What are the characteristics of the regular income tax?
2. What are the main components of the regular income tax model?
3. What are the relevant returns for regular income tax?
4. What are the features of the 8% optional income tax?
5. What does the globalization rule prohibit?
6. How are centavo amounts considered in filling out income tax returns?
7. What are the required attachments to the annual ITR?

Exercise 7.1 TRUE OR FALSE

Determine whether the following statements are true or false.
1. Items of non-operating income earned by self-employed individuals are added at the net income from operations.
2. The use of the progressive tax table indicates that there is no tax on the first P250,000 of the taxable income, 20% on the
next P150,000, 25% on the next P400,000, 30% on the next P1,200,000, 32% on the next P6,000,000 and 35% on succeeding
amounts.

Regular Income Taxation Overview page 23

 3. The progressive tax table is applied to all individuals including non-resident aliens not engaged in trade or business.
4. The corporate income tax rate is an ad valorem tax.
5. A certificate of independent CPA is required as attachment if annual receipts exceed P3,000,000.
6. Income tax returns are required to be filed by taxpayers who are engaged in business.
7. Exempt corporations are still required to file income tax returns despite absence of a tax liability.
8. All purely employed individuals are required to file BIR Form 1700.
9. When a mixed income earner chooses the 8% optional income tax, the taxable compensation income is taxed using the
progressive tax table.
10. When an individual taxpayer chooses the 8% optional income tax, the P250,000 threshold is always deducted to the net
sales/receipts to serve as the basis for the income tax due.
11. There is no need to pay the percentage tax if the taxpayer opts to be taxed at the 8% optional rate.
12. The choice of availing the 8% income tax should be signified on the first quarter returns.

Exercise 7.2 MULTIPLE CHOICE

Choose the best answer from the choices provided.
1. Which is a feature of the regular income taxation?

Regular Income Taxation Overview page 24

 a. Quarterly tax
b. Final withholding tax
c. Creditable withholding tax
d. Gross income tax
2. The distinction between operating and non-operating income is not required in the ITR of
a. Self-employed individuals in business
b. Mixed income earners
c. Self-employed professionals
d. Purely employed individuals
3. Who cannot claim deductions?
a. Self-employed individuals in business
b. Mixed income earners
c. Self-employed professionals
d. Purely employed individuals
4. Who is not required to file quarterly income tax declarations?
a. Self-employed individuals in business

Regular Income Taxation Overview page 25

 b. Mixed income earners
c. Self-employed professionals
d. Purely employed individuals
5. The BIR Form 1701 is not intended for
a. Purely self-employed individuals in business
b. Mixed income earners
c. Estates
d. Trusts
6. Which form is applicable to corporate taxpayers whose income are subject to different rates?
a. 1702RT b. 1702MX c. 1702EX d. 1702A

Problem 7.1 REGULAR INCOME TAX MODEL

Lina Vaughn has a merchandising business. The Gross Income, net of creditable withholding taxes of P20,000, of the business
totaled P860,000. Total expenses incurred by the business totaled P420,000 (P100,000 cannot be allowed for deduction). She also
received a prize from a competition in the amount of P50,000.

Regular Income Taxation Overview page 26

 Fill out the table below.
Items Lina is an Individual Lina is a Corporation
Gross Income
Allowable Deductions
Taxable Income
Tax Due
Tax Credits
Tax Payable

Problem 7.2 REGULAR INCOME TAX FOR INDIVIDUALS

John Camuna, a mixed income earner, obtained the following for the quarters of 2020.
Items Q1 Q2 Q3 Q4
Taxable Compensation 110,000 110,000 110,000 140,000
Net Sales 410,000 470,000 510,000 750,000
Cost of Sales 240,000 280,000 310,000 400,000
Allowable Deductions 110,000 140,000 150,000 180,000
Passive Royalties 20,000 20,000 25,000 16,000

Regular Income Taxation Overview page 27

 Winnings 50,000 - - -
Capital Gains under RIT - 15,000 45,000 -
Tax payments are made within deadlines and tax withheld on compensation totaled P47,500 during the year. ..

Fill out the table below to support amounts on income tax returns filed.
Items Q1 Q2 Q3 Annual
Gross Income from Business
Allowable Deductions
Net Income from Operations
Taxable Income from Previous Quarters
Non-Operating Income
Total Taxable Business Income to Date
Taxable Compensation Income
Total Taxable Income
Tax Due
Tax Credits
Tax Payable

Regular Income Taxation Overview page 28

 Problem 7.3 REGULAR INCOME TAX FOR CORPORATIONS
Assume the same facts from Problem 7.2, except that John Camuna is a corporation and that there were no compensation
income and the related tax withheld. ..

Fill out the table below to support amounts on income tax returns filed.
Items Q1 Q2 Q3 Annual
Gross Income from Operation
Non-Operating Income
Total Gross Income
Allowable Deductions
Taxable Income for this Quarter
Taxable Income from Previous Quarter/s
Total Taxable Income
Tax Due
Tax Credits
Tax Payable

Regular Income Taxation Overview page 29

 Problem 7.4 8% OPTIONAL RATE
Teeradon, a mixed income earner, reported a taxable compensation income of P400,000. His taxable business income is
P800,000. The cost of services and allowable deductions from the business are P1,000,000 and P500,000, respectively.
Answer the following independent questions.
1. How much is the tax due if Teeradon chooses to be taxed at 8%?
2. How much is the total tax due if Teeradon chooses to be taxed at graduated rates?
3. Ignore the compensation income. How much is the tax due if Teeradon chooses to be taxed at 8%?
4. Ignore the compensation income. How much is the total tax due if Teeradon chooses to be taxed at graduated rates?

Problem 7.5 8% OPTIONAL RATE

Eisaya chose to be taxed at 8% optional rate on the first quarterly ITR. The following are reported for each quarter.
Item First Second Third Fourth
Taxable Compensation 40,000 40,000 40,000 60,000
Gross Sales 400,000 700,000 2,000,000 500,000
Cost of Sales 160,000 270,000 750,000 210,000
Allowable Deductions 60,000 80,000 210,000 60,000

Regular Income Taxation Overview page 30

 Compute for the tax payable for each return filed.

Problem 7.6 GLOBALIZATION RULE

Trunchbull, a mixed income earner, earned gross compensation income during the year amounting to P420,000 which was
inclusive of P50,000 worth of exempt compensation. Her merchandising business had total sales of P800,000 at a cost ratio of
60%. Allowable deductions were P350,000.
Compute for the tax payable.

Problem 7.7 TRUSTS

Trust E and Trust T have the same grantor and beneficiary. The gross income earned during the taxable year were P500,000
and P6,000,000, respectively. Expenses were P150,000 and P3,300,000. The beneficiary received the following:
Source Trust E Trust T
From the Corpus 1,000,000 4,000,000
From the Income 50,000 500,000
Compute for the tax payable of each trust account.

Regular Income Taxation Overview page 31