CHAPTER 14 – REGULAR INCOME TAXATION: INDIVIDUALS

TRUE OR FALSE

1. TRUE A revocable trust does not pay income tax.

2. TRUE Estates under judicial administration are considered
individual taxpayers.
3. FALSE Non-resident persons shall file their tax return to the
Office of the Commissioner of Internal Revenue. (some are not subject to
FIT)
4. TRUE The income distribution by a taxable estate or trust is a
special deduction to the estate or trust, but it is an item of
gross income to the recipient heir or beneficiary.
5. TRUE The income of minors from properties received as donations
from parents is taxable to the minor if the donation is exempt
from the donor’s tax.
6. TRUE The husband and the wife are treated as separate taxable
units. Each spouse shall compute his or her taxable income, but
both of them shall file a single return to include the income of
both spouses.
7. TRUE The income of minors from properties received as donations
from parents is taxable to parents if the donor’s tax on the
donation is not paid.
8. FALSE A disabled person need not file a return by virtue of his
disability.

9. TRUE The taxpayers signature in the income tax return is presumed

prima facie correct.

10. TRUE Large taxpayers shall e-file their tax returns through the
BIR Electronic Filling and Payment System.

11. FALSE Two or more trusts are consolidated as a single trust when
both are designated for the same beneficiary without regard to their
grantor.

12. TRUE When the grantor reserved for himself part of the income of
the trust, the same shall be treated as income of the grantor.

13. TRUE A trusteed employee pension fund does not pay income tax.

14. TRUE The substituted filing of tax returns does not apply when
there is concurrent or successive employment of the employee during
the year.

15. FALSE An employee trust fund must be managed by the employer to

be tax-exempt.
MULTIPLE-CHOICE: THEORY- PART 1
1. Who is a resident citizen?
a. A citizen who went on tour abroad
b. A citizen of the Philippines who establishes to the satisfaction
of the CIR the fact of his physical presence abroad with a
definite intention to reside therein
c. A citizen of the Philippines who leaves the Philippines during
taxable year to reside abroad.
d. A citizen of the Philippines who works and derives income abroad
and whose employment requires him to be physically present abroad
most of the time during the year.
2. Which of the following is an individual whose residence is within the
Philippines but who is not a citizen thereof?
a. Resident Citizen c. Resident Alien
b. Non-Resident Alien d. Non-Resident Alien

3. A non-resident alien is considered engage in trade or business in the

Philippines if he stayed therein for
a. at least 183 days c. more than 183 days
b. at least 180 days d. more than 180 days

4. On which of the following dates shall a citizen who left the

Philippines during the year be classified as a non-resident citizen for
the year?
a. May 31 c. July 15
b. July 31 d. November 30

5. An alien shall be classified as resident in 2014 if he arrived in the

Philippines on which of the following dates?
a. December 30, 2013 c. July 15, 2014
b. January 1, 2014 d. December 31, 2014

6. An individual whose residence is not within the Philippines and who

is not a citizen thereof
a. Resident Citizen c. Resident alien
b. Non-resident alien d. Non-resident alien

7. How long does a citizen have to stay abroad before being classified
as a non-resident?
a. At least 183 days c. More than 183 days
b. At least 180 days d. More than 180 days

8. How long shall an alien have to stay in the Philippines before being
classified as a resident alien?
a. At least 183 days c. At least 1 year
 b. More than 183 days d. More than 1 year

9. The length of stay of individuals for purposes of taxpayer

classifications is reckoned as of
a. December 31 of the current year
b. December 31 of the prior year
c. the day the alien individual leaves the Philippines
d. the day the individual taxpayer files his income tax return

10. Which of the following is not subject to regular income tax?

a. Resident citizen
b. Resident alien
c. Non-resident alien engaged in trade or business
d. Non-resident alien not engaged in trade or business

11. In 2014, an alien who has been in the country since July 1, 2013 is
classified as a
a. Resident alien c. NRA – ETB
b. Resident citizen d. NRA – NETB
12. In 2016, an American who had been a resident in the Philippines
since August 14, 2016 is a
a. Resident citizen c. NRA – ETB
b. Resident alien d. NRA – NETB

MULTIPLE-CHOICE: THEORY – PART 2

1. Which of the following is subject to final tax?
a. 13th month pay and other benefits
b. Supplemental compensation
c. Fringe benefits fringe benefit is a final tax on employee's income to be withheld
by the employer.
d. Regular compensation income
2. Which of the following cannot claim deduction from gross income?
a. Resident citizens deriving income solely from employment
b. Non-resident citizens engaged in business
c. Resident citizens deriving mixed income from employment and
business
d. Resident aliens deriving mix passive income and business income

3. To which of the following does the substituted filling system apply?

a. Purely employed taxpayers
b. Taxpayers purely engaged in business
c. Mixed income taxpayers
d. Any of these
4. Which is not a requisite of the substituted filling system?
a. The taxpayer must have only one source of business income.
b. The taxpayer must have only one employer during the year.
 c. The taxpayer has no other source of gross income subject to
regular tax other than compensation
d. The employer did not commit errors in the computation of the
employee’s income tax.
5. Which of the following employees is not required to file an annual
consolidated income tax return?
a. Those with concurrent employment during the year
b. Those with successive employment during the year
c. Those deriving income distribution from a general professional
partnership, taxable trusts, or taxable estates.
d. Those earning purely compensation income when the employer
correctly withheld the tax
6. A taxpayer who is both engaged in business and employment is not
a. Subject to the withholding tax on salaries by his employer
b. Required to file quarterly income tax on business income.
c. Required to consolidate his quarterly mixed income for quarterly
tax reporting
d. Required to file an annual consolidated income tax return.
7. Which individual income taxpayer can claim tax credit for foreign
taxes paid?
a. Resident citizen c. Non-resident citizen
b. Resident alien d. All of these

8. What is the optional standard deduction claimable by individual

income taxpayers who is engaged in business?
a. 25% of gross income c. 40% of gross income
b. 25% of sales receipt d. 40% of gross receipt or sales
9. When should individual income taxpayer’s submit their annual
consolidated return for the year 2020?
a. April 15, 2020
b. November 15, 2020
c. April 15, 2021
d. 15th day of the fourth month following the fiscal year of the
taxpayer
10. Which of the following taxes is a resident citizen or alien subject?
a. Final Tax c. Regular tax
b. Capital gains tax d. All of these
11. A non-resident alien, not engaged in trade or business is not
subject to
a. final tax c. regular tax
b. capital gains tax d. None of these
MULTIPLE-CHOICE: THEORY – PART 3
1. What is not required to file quarterly income tax return?
a. Pure compensation
b. Pure business income earner
c. Pure professional income earner
d. Mixed income earner
2. Who is not subject to withholding tax on compensation?
a. Mixed income earner
b. Pure compensation income earner
c. Minimum wage earner
d. None of these
3. An individual who want to pay the regular income tax using optional
standard deductions shall use
a. Form 1700 c. From 1701A
b. Form 1701 d. Form 1702
4. Individuals opting to be taxed under 8% income tax shall use
a. Form 1700 c. Form 1701A
b. Form 1701 d. Form 1702
5. Trusts and estates shall use which tax form
a. Form 1700 c. Form 1701A
b. Form 1701 d. Form 1702
6. An adjustment return is least likely to be required when
a. The employee compensation from multiple employers
b. The employee has two successive employers during the year
c. The employer has under-withheld the tax
d. The employer has over-withheld the tax
7. A minimum wage earner who is subjected to withholding tax shall
a. File an adjustment return and pay residual tax
b. File a quarterly income tax return
c. File an adjustment return and claim tax refund
d. Do nothing
8. If husband and wife are both employed, which is correct regarding
their income tax exemption in the tax table?
a. Each spouse shall be entitled to a P250,000 income tax exemption
in the tax exemption in the tax table.
b. Each family is allowed P500,000 income tax exemption in the tax
table.
c. Either the husband or wife can take advantage of the P500,000
income exemption in the tax table.
d. Only the husband shall be allowed the P250,000 income tax
exemption in the tax table.
9. A husband earned P450,000 taxable income. His wife also earned
P100,000 taxable income. Which is true?
 a. There will be no aggregate tax due for the spouses
b. The husband pays tax while the wife is exempt
c. The wife pays the tax while the husband is exempt
d. Both spouses will report tax due
10. If the husband is employed with P700,000 taxable income while his
wife is unemployed, he shall will be actually subject to tax on
a. P 700,000 of income c. P 350,000 of income
b. P 450,000 of income d. P 200,000 of income
11. Which of the following scenario will still require an adjustment
return from the employee even if the employers correctly withheld the
tax on their compensation payments?
a. Employees has concurrent employment
b. Employees had successive employees during the year
c. The employee earned income from other sources
d. All of these
12. An employee who earned income from other sources shall use which
annual return?
a. Form 1700 c. Form 1701Q
b. Form 1701 d. Form 1702
13. Which is a source of tax credit against the tax due under Form 1700?
a. Form 2316 c. 1701Q
b. Form 2307 d. All of these
14. Which is a tax credit against the tax due under Form 1700?
a. Form 2316 c. 1701Q
b. Form 2307 d. All of these

15. The first quarter income tax return is due

a. April 15 of the same year
b. April 25 of the same year
c. May 15 of the same year
d. May 25 of the same year

16. The third quarter income tax return is due

a. August 15 of the same year
b. August 25 of the same year
c. November 15 of the same year
d. November 25 of the same year

17. Which is incorrect regarding the 8% optional income tax?

a. It substitute the regular income tax and the 3% percentage tax.
b. The 8% income tax option is irrevocable for the year it is made.
c. May be opted to if the taxpayer claimed optional standard
deduction
d. May be used even if the taxpayer is also an employee
18. Which will not be included in the tax basis of the 8% income tax?
 a. Gross sales c. Gross income from operation
b. Gross receipts d. Other gross income subject to regular
tax
19. Which is an item of income subject to regular tax?
a. Dividend income c. Gain on sale of domestic stocks
b. Royalty income d. Gain on sale of equipment
20. Who is not allowed the option to be taxed at 8%?
a. Compensation income earner
b. Business income earner
c. Professional income earner
d. Mixed income earner
21. Statement 1: There is no need to file a consolidated return if the
withholding tax on compensation and the expanded withholding tax is
correctly withheld.
Statement 2: A businessman who is deriving income from a sole
customer need not file a consolidated return if the customer correctly
withheld any expanded withholding tax.
a. True; True c. False; True
b. True; False d. False; False

MULTIPLE CHOICE:PROBLEMS –PART 1

1. Trixie’s business uses a fiscal year accounting period starting July
1 and ending June 30 for internal reporting. Her business reported the
following quarterly net income on a fiscal year basis:
FISCAL YEAR 2018-2019 2019-2020
- 1st Quarter (July 1 to September 30) P 190, 000 P 210, 000
- 2nd Quarter (October 1 to December 31) 220, 000 250, 000
- 3rd Quarter (1/1/2020-3/31/2020) 180, 000
- 4th Quarter (4/1/2020-6/30/2020) 200, 000

Compute the taxable net income to be reported April 15, 2021?

a. P 790, 000 c. P 840, 000 (P180K + P200K + P210K + P250K)

b. P 810, 000 d. P 850, 000

2. Jerson, married 15 dependents, had the following income within and

outside the Philippines:

Philippines Abroad
Compensation income P 280, 000 -
Rental income 50, 000 100, 000
Royalties – books 32, 000 25, 000
Domestic dividends 9, 000 -
Foreign dividends - 40, 000

Compute his taxable income assuming she is a resident citizen.

a. P 330, 000 c. P 495, 000 (P280K + P50K + P100K + P25K + P40K)

b. P 371, 000 d. P 536, 000

3. Compute his taxable income assuming she is a resident alien.

a. P 330, 000 (P280K + P50K) c. P 495, 000

b. P 371, 000 d. P 536, 000

4. Henrie, a managerial employee, received the following employee

benefits in 2020:

Salaries, net of mandatory and exempt benefits P 4, 000, 000

Stock bonus 800, 000
Director’s fee 200, 000
Car designated for the use of Henrie 2, 500, 000
House and lot, transferred in the name Henrie 5, 000, 000

Compute the taxable income of Henrie.

a. P 12, 500, 000 c. P 5, 000, 000 (P4M + P800K + P200K

b. P 7, 500, 000 d. P 4, 800, 000
Note: Car usage and the house and lot are subject to fringe benefit tax.)
5. In the immediately preceding problem, compute the fringe benefit tax
for the year.
a. P 1, 346,153
b. P 2, 692, 308
c. P 2, 826, 923 [(P2.5M/5 X 50%)/65% X 35%] + (P5M/65% X 35%)
d. P 4, 038, 462

6. The following relate to the net income of the firm of Mr. Agustin O.
Odit:

Professional fees P 600, 000

Long-term capital gain 80, 000
Short-term capital gain 45, 000
Ordinary gain 20, 000
Long-term capital loss (90, 000)
Short-term capital loss (30, 000)
Ordinary loss (40, 000)
Other business expenses (200, 000)
Net income P 385, 000

Compute his taxable income.

a. P 385, 000
b. P 390, 000 (P600K + P20K O. gain – P200K expense – P40K O. loss +10K Net Capital gain);
Net capital gain = 80K x 50% + 45K - 90K x 50% - 30K.)
c. P 410, 000
d. P 435, 000
7. Shown below is the summarized of operations of Mr. Chiz Mozo’s
business:
Sales P 900, 000
Cost of sales 300, 000
Gross profit P 600, 000
Other deductible expenses 100, 000
Contributions expenses:
- Government priority project 50, 000
- Non-accredited non-profit institution 55, 000
- Foreign foundation 25, 000
Net income P 370, 000

Compute his taxable income.

a. P 400, 000 (P600K Gross profit - P100K Other deduction - P50K Fully deductible – P50K
Contribution subject to limit) Limit on NANPI contribution = (P600K GP - P100K ODE) x 10% =
P50K; lower than P55K actual.
c. P 420, 000
b. P 405, 000
d. P 450, 000

8. During the year, Coleen received compensation income of P455,000

after P15,000 withholding tax on compensation. Compute her income tax
still due.
a. P 48, 750
b. P 47, 500 (470K – 400K lower limit)x(25%Tax on Excess)+30K amount tax
limit
c. P 28, 750
d. P 32, 500

9. A Filipino citizen has P400,000 Philippine income and P300,000

foreign income. He paid P55,000 income taxes abroad. Compute the
allowable tax credit for the income taxes paid abroad.
a. P 0
b. P 40, 000
c. P 45, 000 (700K-400k lower limit)X(25%Tax on Excess
d. P 55, 000
(Taxable income = P700,000; Taxable income per tax table is P105,000. Foreign tax credit limit is
P300K/P700K x P105,000 = P45,000. Tax credit is P45,000 since lower than P55,000.
10. In the preceding problem, what is the tax credit if the taxpayer was
a non-resident citizen or a resident alien?

a. P 0 c. P 45, 000
b. P 40, 000 d. P 55, 000
(Only taxpayers subject to tax on global income such as resident citizen is qualified for tax credit
for foreign taxes paid.)

MULTIPLE CHOICE: PROBLEMS – PART 2

1. Kareen received the following income from her employment in 2020:

Gross sales P 400, 000

Deductions for:
- SSS P 10, 000
- PhilHealth 8, 000
- Pag-Ibig 7, 000
- Union dues 2, 000
- Withholding tax 67, 400
- Loans repayment 50, 000
- Tardiness and absences 15, 000
Net pay P 240, 600

Compute Kareen’s taxable compensation icome.

a. P 240, 600
b. P 290, 600
c. P 358, 000 (P400K - P15K tardiness - P10K SSS - P8K PH - P7K Pag-ibig - P2K Union dues)
d. P 400, 000

2. Mary made the following computations of her annual financial savings

from employment, her sole source of income:

Salaries, net of P59,000 withholding tax

and P12 ,000 mandatory payroll deductions P 321, 000
Expenses:
- Loan expenses P 10, 000
- Medical expenses 8, 000
- Transportation expenses 25, 000
- Food, rent & utilities 100, 000
- Bank loan repayments 20, 000
- Miscellaneous expenses 15, 000
Net savings for 2020 P 143, 000

What is Mary’s taxable compensation income in 2020?

a. P 280, 000 c. P 380, 000 (P321K + P59K WH tax)

b. P 321, 000 d. P 392, 000
3. Mr. Roger presented the following schedule of income in 2020:

Service fees, net of 15% withholding tax P 617, 500

Dividends from a domestic corporation 20, 000
Interest income from bank 10, 000
Expenses:
- Office utilities expenses P 30, 000
- Staff salaries 120, 000
- Rent & miscellaneous expenses 80, 000 230,000
- Tuition fees of 5 dependent children 100, 000
- Personal medical expenses 15, 000
Net business income P 297, 500

Total deductible expense against gross income is

a. P 0
b. P 230, 000 P30K utilities + P120K salaries + P80K rent & miscellaneous)
c. P 330, 000
d. P 345, 000

4. Compute Roger’s taxable net income.

a. P 305, 000
b. P 320, 000
c. P 387, 500
d. P 420, 000 (P617.5K/95% service fees - P230K deductible expense)

5. Compute the tax still due.

a. P21,500 refundable
b. P18,500 refundable
c. P5,000 refundable (Tax due per tax table is P35,000 – P32,500 withholding tax,
computed as (P617,500/95%) x 5%)
d. P2,500 payable

6. Compute the tax still due if Mr. Roger opted to the 8% optional
tax.
a. P 31, 800
b. P 32, 000
c. P 34, 400
d. P 52, 000 (P617,500/95%) x 8%
7. Jerik, a self-employed employee with ten dependent children, had the
following items of income and expenses in 2020:

Sales P 900, 000

Less: Cost of sales 400, 000
Gross profit P 500, 000
Interest income, net of 20% final tax 16, 000
Interest income from clients notes 12, 000
Expenses:
- Salaries expense P 100, 000
- Depreciation expense 15, 000
- Rent & other expenses 50, 000
- Interest expense 30, 000
Net income P 333, 000

Compute the deductible business expense.

a. P 165, 000
b. P 188, 400(P100K+P15K+P50K+[P30K-(P16K/80% X 33%)]
c. P 189, 720
d. P 195, 000

8. Jerik shall report a taxable income of

Gross profit from operation P 500,000
Interest income from notes 12,000
Total gross income subject to regular tax P 512,000
Less: Total deductions 188,400
Net income P 323,600

a. P 322, 280 c. P 310, 280

b. P 323, 600 (500K-188,400-150K PE) d. P 311, 600

9. Compute the taxable income if Jerik opted to use the optional

standard deduction
Salaries expense P 100,000
Depreciation expense 15,000
Rent and other expense 50,000
Interest expense (P30K – 33% x P16K/80%) 23,400
Total deduction P 188,400

a. P 165, 000 c. P 189, 720

b. P 188, 400 d. P 191, 000

10. Compute the income tax due if Jerik opted to use the 8% optional
income tax.

a. P 72, 960 c. P 52, 960

b. P 72, 000 d. P 52, 000

11. An individual income tax payer had the following income:

Compensation income P 820, 000

Mandatory payroll deductions 20, 000 800,000
Gross receipts 1, 800, 000
Direct cost of services 500, 000(1,300,000)
Expenses 300, 000
Other income subject to regular tax 100, 000
Other income subject to final tax 200, 000
Withholding tax on compensation 130, 000
Expanded withholding tax on receipts 14, 000
Estimated tax payments made 94, 000

Compute the income tax still due if the taxpayer opted to the itemized
deduction.

Compensation income P 820,000

Less: Non-taxable compensation 20,000
Taxable compensation income P 800,000

Gross receipts P 1,800,000

Less: Cost of services 500,000
Gross profit from operations P 1,300,000
Other income subject to RIT 100,000
Total gross income subject to RIT P 1,400,000
Less: Deductions 300,000
Net income 1,100,000
Taxable income P 1,900,000
Tax due of P1.9M per tax table P 460,000
Less: Tax credits WH tax on compensation P 130,000
CWT on gross income 14,000
Estimated quarterly tax payments 94,000 238,000
Tax still due P 222,000

a. P 351, 000 c. P 222, 000

b. P 322, 000 d. P 192, 000

12. Compute the income tax due if the taxpayer opted to the optional
standard deduction.

Compensation income P 820,000

Less: Non-taxable compensation 20,000
Taxable compensation income P 800,000

Gross receipts P 1,800,000

Less: Cost of services -
Gross profit from operations P 1,800,000
Other income subject to RIT 100,000
Total receipts and other income P 1,900,000
Less: OSD (P1.8M x 40%) 720,000
Net income 1,180,000
Taxable income P 1,980,000
Tax due of P1.98M per tax table P 484,000
Less: Tax credits WH tax on compensation P 130,000
CWT on gross income 14,000
Estimated quarterly tax payments 94,000 238,000
Tax still due P 246,000

a. P 351, 000 c. P 222, 000

b. P 246, 000 d. P 192, 000

13. Compute the income tax due if the taxpayer opted to the 8% optional
income tax.
Compensation income P 820,000
Less: Non-taxable compensation 20,000
Taxable compensation income P 800,000 P 130,000

Gross receipts P 1,800,000

Less: Cost of services -
Gross profit from operations P 1,800,000
Other income subject to RIT 100,000
Total receipts and other income P 1,900,000
Multiply by: 8% 152,000
Total tax due P 282,000

a. P 282, 000 c. P 262, 000

b. P 278, 000 d. P 254, 000

14. Mr. Markey recorded sales of P2,500,000, cost of sales of P1,000,000

and expenses of P700,000. He is also a partner in various partnership
and received the following share in their net income:

General Professional Business partnership

partnership
Share in net income P 200, 000 P 400, 000

Compute the income tax due if Mr. Markey opted to itemized deduction.

Sales P 2,500,000
Less: Cost of sales 1,000,000
Gross income from operations P 1,500,000
Add: Other income Share in GPP net income 200,000
Total gross income subject to RIT P 1,700,000
Less: Deductions 700,000
Net income P 1,000,000
Tax due of P1M per tax table P 190,000

a. P 310, 000 c. P 190, 000

b. P 250, 000 d. P 130, 000

15. Compute the income tax due if Mr. Markey opted to the 8% optional
tax.

Sales 2,500,000
Add: Other income Share in GPP net income 200,000
Total sales and other income P 2,700,000
Less: Annual income exemption 250,000
Total P 2,450,000
Multiply by: 8%
Tax due P 196,000

a. P 216, 000 c. P 196, 000

b. P 200, 000 d. P 180, 000