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A personal bank appearance is required for check tax payments.
False
Accommodation checks are allowed for tax payment.
False
Income tax is regarded as a tax on the privilege of earning income.
True
Manager's checks are prohibited for tax payments.
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The three requisites of taxability of income include gain or profit, realization or receipt, and exclusion by law.
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The function of income tax includes mitigating social inequalities.
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Stale checks dated six months prior to presentation are allowed for tax payments.
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Income tax applies to all wealth flowing into a taxpayer's resources.
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The realization test is based on an open and incomplete transaction.
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Stock dividends are considered taxable income because they represent cash gains.
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Non-cash benefits are included as part of taxable income under the economic-benefit principle.
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An increase in the value of property is considered realized income.
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A tax refund is considered as income if it was previously allowed as a deduction.
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Constructive receipt refers to income that is actually possessed by the taxpayer.
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Interest coupons that have matured but not been cashed are regarded as constructively received income.
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The income must have substantial limitations for it to be subject to the constructive receipt rule.
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The schedular system of taxing income treats all categories of taxable income indifferently.
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In the Philippines, the taxation of corporations utilizes a global approach.
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Non-resident aliens engaged in trade have the same classification as resident citizens for taxation purposes.
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Passive incomes are wholly exempt from the schedular system of taxing income.
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A citizen of the Philippines who works abroad but is physically present most of the time is classified as a non-resident citizen.
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Resident aliens are defined as individuals whose residence is outside the Philippines.
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The global taxation system prescribes a flat rate for all categories of taxable income.
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Non-resident foreign corporations fall under the partnership classification for income taxation.
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A non-resident alien individual who stays in the Philippines for more than 180 days is considered as not engaged in trade or business.
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A Philippine branch of a foreign corporation is categorized as a resident foreign corporation.
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A joint venture formed for energy operations is regarded as a corporation for taxation purposes.
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Partners in a general professional partnership are taxed in their separate capacities.
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Profits distributed to partners from an ordinary business partnership are termed as salary.
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A non-resident foreign corporation is one that is engaged in trade or business in the Philippines.
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General professional partnerships must derive income from engaging in trade to qualify as such.
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Each partner in a partnership must report their entire equity stake in the partnership as gross income.
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A Tax Return is a sworn statement declaring the facts of a taxpayer's tax liability for a taxable year.
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Individuals with pure compensation income subject to correct withholding are required to file an Income Tax Return.
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A Fiscal Year can extend from April to March of the following year.
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The general rule for tax payment is to pay all taxes owed in full at the end of the taxable year.
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Deficiency assessments require immediate full payment of taxes by the taxpayer.
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Over-the-counter payments for taxes can only be made in cash for amounts exceeding P10,000.
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EFPS refers to the electronic filing and payment system for tax-related transactions.
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The Income Tax Return (ITR) for individuals uses BIR FORM 1702.
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Study Notes
Income Tax Return Terminologies
- A tax return is a sworn statement declaring tax liability for a taxable year. False statements constitute perjury.
- An income tax return reports income and allowable deductions for a taxable year.
- BIR Form 1701 is for individuals, and BIR Form 1702 is for corporations.
Income Tax Return Filing Exemptions
- Individuals with pure compensation income subject to correct withholding tax are exempt.
- Individuals whose sole income is subject to final withholding income tax are exempt.
- Individuals exempt from income tax are exempt from filing.
Taxable Year
- A taxable year is a 12-month accounting period.
- Types include the calendar year (January to December) and fiscal year (any 12-month period).
Process of Paying Taxes
- The process involves computation, filing, and payment.
- Manual filing is at BIR Revenue District Offices (RDOs).
- Electronic filing options include eFPS and e-BIR forms.
Payment of Taxes
- Generally, it's a pay-as-you-file system.
- Exceptions include income tax over ₱2,000 (allowing two installments), corporations facing dissolution/liquidation/reorganization, deficiency assessments, and terminated tax periods.
Payment Methods
- Electronic payment methods include eFPS, PhilPass, debit/credit/ prepaid cards, GCash, and bank debit systems.
- Over-the-counter payment is through Authorized Agent Banks (AABs), with a ₱10,000 cash limit per transaction. Check payments are allowed.
Check Tax Payments
- One check per tax return and period is the rule, although multiple checks or combinations of cash and checks are allowed. Personal bank appearance is not needed.
- Manager's checks and cashier's checks are acceptable.
- Accommodation checks, second indorsed checks, stale checks, postdated checks, unsigned checks, and checks with alterations/erasures are prohibited.
Income Tax
- Income tax is levied on income from various sources, less authorized deductions and exemptions.
- It's considered a tax on the privilege of earning income, not on persons, property, funds, or profits. It's self-assessing.
Nature and Functions of Income Tax
- It's a tax on the privilege of earning income.
- Its primary function is revenue generation.
- It offsets regressive sales and consumption taxes and mitigates income inequality.
Income vs. Capital
- Income is wealth flowing to the taxpayer, excluding capital returns.
- Capital is a fund or property used to produce goods or services.
Three Requisites of Taxability of Income
- Gain or profit must exist.
- It must be realized or received.
- It must not be excluded by law or treaty.
Three Tests of Taxability of Income
- Flow of Wealth Test: determines if gain was derived from a transaction.
- Realization Test: Requires a closed and completed transaction.
- Economic-Benefit Principle: Taxable income is limited to actual economic benefit.
Examples of Income and Non-Income
- Income: Found treasure, punitive damages, certain damage awards, collected worthless debts, non-cash benefits, illegal income, giveaway prizes (generally). Scholarships and fellowships may or may not be considered income depending on specific circumstances and the intention of the provider.
- Not Income: Stock dividends (generally represent increased equity, not income), tax refunds (except when a previously deducted tax amount is refunded).
Realized/Received Income
- Realized implies that only actual economic gains are taxable, not mere increases in asset value.
- Received means actually received or constructively received.
Constructive Receipt
- Income is considered constructively received if credited to an account or set apart for the taxpayer, even if not withdrawn. Substantial limitations restrict this definition.
Systems of Taxing Income
- Global System: Taxes all income categories similarly.
- Schedular System: Taxes different income categories at different rates.
- The Philippines uses a mixed schedular and global system.
Classes of Income Taxpayers
- Individuals: Resident citizens, non-resident citizens, resident aliens, non-resident aliens engaged/not engaged in trade or business.
- Corporations: Domestic, resident foreign, non-resident foreign.
- Partnerships
- Estates and trusts
Non-Resident Citizens
- Defined by physical presence abroad with intent to reside there, leaving the Philippines permanently or for employment, working abroad extensively, or returning to the Philippines permanently after previously being a non-resident citizen.
Aliens
- Resident aliens: reside in the Philippines but are not citizens.
- Non-resident aliens: do not reside in the Philippines and are not citizens. Non-resident aliens engaged in trade or business are defined if their stay exceeds 180 days.
Corporations
- Domestic corporations: Created or organized in the Philippines.
- Resident foreign corporations: Engaged in business in the Philippines (branches, representative offices, regional headquarters).
- Non-resident foreign corporations: Not engaged in business in the Philippines.
Joint Ventures
- Joint ventures for construction or energy operations under government contracts are generally not considered corporations for tax purposes.
Partnerships
- Ordinary business partnerships: Taxed as corporations.
- General professional partnerships (GPPs): Partners are taxed individually; income is not derived from trade or business. Each partner reports their distributive share of net income only.
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Description
Test your knowledge on key terminologies related to income tax returns, including filing exemptions, taxable years, and the process of paying taxes. This quiz covers essential forms and the mechanisms of manual and electronic filing.
