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A tax return is a sworn statement in which taxpayers declare their tax liability for a taxable year, including the computation of tax due.
A tax return is a sworn statement in which taxpayers declare their tax liability for a taxable year, including the computation of tax due.
True
The income tax return form for corporations is BIR FORM 1701.
The income tax return form for corporations is BIR FORM 1701.
False
An individual with pure compensation income that has correctly withheld tax is required to file an income tax return.
An individual with pure compensation income that has correctly withheld tax is required to file an income tax return.
False
A fiscal year can end in any month other than December.
A fiscal year can end in any month other than December.
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Deficiency assessments are an exception to the general rule of paying taxes under the pay-as-you-file system.
Deficiency assessments are an exception to the general rule of paying taxes under the pay-as-you-file system.
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Individuals who pay income tax exceeding P2,000 must do so in three installments.
Individuals who pay income tax exceeding P2,000 must do so in three installments.
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Payment of taxes can be made electronically through various modes including eFPS and Gcash.
Payment of taxes can be made electronically through various modes including eFPS and Gcash.
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Taxpayers are limited to a cash payment maximum of P10,000 only through Authorized Agent Banks when paying taxes over-the-counter.
Taxpayers are limited to a cash payment maximum of P10,000 only through Authorized Agent Banks when paying taxes over-the-counter.
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A check for tax payment can be dated 7 months prior to its presentation.
A check for tax payment can be dated 7 months prior to its presentation.
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Income tax is considered a tax on a person's privilege of earning income.
Income tax is considered a tax on a person's privilege of earning income.
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Only personal bank appearances are required for check tax payments.
Only personal bank appearances are required for check tax payments.
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Accommodation checks are permitted for tax payments.
Accommodation checks are permitted for tax payments.
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A second indorsed check is allowed for tax payment.
A second indorsed check is allowed for tax payment.
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The flow of wealth test determines if profit was derived from a transaction.
The flow of wealth test determines if profit was derived from a transaction.
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Checks with alterations or erasures are acceptable for tax payment.
Checks with alterations or erasures are acceptable for tax payment.
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Income tax functions to mitigate inequalities in the distribution of wealth.
Income tax functions to mitigate inequalities in the distribution of wealth.
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The sale of tickets through a sales agent for Philippine Air Lines produces no income.
The sale of tickets through a sales agent for Philippine Air Lines produces no income.
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An increase in the value of property is considered taxable income.
An increase in the value of property is considered taxable income.
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Punitive damages can be classified as a source of income.
Punitive damages can be classified as a source of income.
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Stock dividends are always considered taxable income.
Stock dividends are always considered taxable income.
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Constructive receipt refers to income not actually received but available for taxpayer use.
Constructive receipt refers to income not actually received but available for taxpayer use.
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Tax refunds are automatically considered taxable income regardless of prior deductions.
Tax refunds are automatically considered taxable income regardless of prior deductions.
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Unearned income from illegal sources is not subject to taxation.
Unearned income from illegal sources is not subject to taxation.
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Interest coupons that have matured but are not cashed are considered received income.
Interest coupons that have matured but are not cashed are considered received income.
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The global system of taxing income treats all categories of taxable income equally without differentiation.
The global system of taxing income treats all categories of taxable income equally without differentiation.
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In the Philippines, the schedular approach is used exclusively for taxing corporations.
In the Philippines, the schedular approach is used exclusively for taxing corporations.
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Non-resident aliens engaged in trade are classified as individual taxpayers in the Philippines.
Non-resident aliens engaged in trade are classified as individual taxpayers in the Philippines.
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Resident aliens are individuals whose residence is within the Philippines and who hold citizenship there.
Resident aliens are individuals whose residence is within the Philippines and who hold citizenship there.
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The Philippines applies a flat rate for all passive incomes derived by individuals under the global system.
The Philippines applies a flat rate for all passive incomes derived by individuals under the global system.
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A citizen of the Philippines who works abroad and is physically present there most of the time is classified as a resident citizen.
A citizen of the Philippines who works abroad and is physically present there most of the time is classified as a resident citizen.
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Capital gains are generally exempt from taxation under the schedular system.
Capital gains are generally exempt from taxation under the schedular system.
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A citizen of the Philippines who resides abroad with intent to reside there permanently is classified as a resident citizen.
A citizen of the Philippines who resides abroad with intent to reside there permanently is classified as a resident citizen.
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A non-resident alien individual who stays in the Philippines for 160 days in a calendar year is deemed engaged in trade or business.
A non-resident alien individual who stays in the Philippines for 160 days in a calendar year is deemed engaged in trade or business.
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Domestic corporations are defined as those created or organized outside the Philippines.
Domestic corporations are defined as those created or organized outside the Philippines.
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General professional partnerships derive income primarily from engaging in a trade or business.
General professional partnerships derive income primarily from engaging in a trade or business.
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The income distributed to partners in an ordinary business partnership is treated as dividends.
The income distributed to partners in an ordinary business partnership is treated as dividends.
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A Philippine branch of a foreign corporation is classified as a resident foreign corporation.
A Philippine branch of a foreign corporation is classified as a resident foreign corporation.
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Joint ventures formed specifically for construction projects are classified as corporations in the Philippines.
Joint ventures formed specifically for construction projects are classified as corporations in the Philippines.
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Each partner in a general professional partnership is liable for income tax in their individual capacity.
Each partner in a general professional partnership is liable for income tax in their individual capacity.
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A non-resident foreign corporation is always engaged in trade or business within the Philippines.
A non-resident foreign corporation is always engaged in trade or business within the Philippines.
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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.
- BIR Form 1701 is for individuals, BIR Form 1702 is for corporations.
Income Tax Return Filing Exemptions
- Individuals with pure compensation income where tax has been correctly withheld are exempt.
- Individuals whose sole income is subject to final withholding tax are exempt.
- Individuals exempt from income tax are exempt from filing.
Taxable Year
- A taxable year is a 12-month accounting period.
- It can be a calendar year (January to December) or a fiscal year (any 12-month period).
Process of Paying Taxes
- Tax payment involves computation, filing, and payment.
- Filing can be manual (at BIR Revenue District Offices) or electronic (eFPS, e-BIR forms).
- Payment is generally pay-as-you-file, except for certain situations (income over 2,000, corporations dissolving/liquidating/reorganizing, deficiency assessments, terminated tax periods).
- Electronic payment methods include eFPS, PhilPASS, debit/credit/prepaid cards, GCash, and bank debit systems.
- Over-the-counter payments are limited to authorized agent banks, with cash limited to ₱10,000.
Check Tax Payments
- One check per tax return and period is allowed; multiple checks are acceptable.
- Cash and check combinations are permitted. Personal bank appearance is not required.
- Manager's checks and cashier's checks are acceptable.
- Accommodation checks, second indorsed checks, stale checks (over 6 months), postdated checks, unsigned checks, and checks with alterations are prohibited.
National Taxation: Income Tax
- Income tax is a tax on income from various sources, less allowable deductions and exemptions. It’s a tax on the privilege of earning income, not on persons, property, or profits. It is self-assessing.
Nature and Functions of Income Tax
- Income tax is primarily a revenue-raising tool.
- It offsets regressive sales and consumption taxes.
- It aims to mitigate income and wealth inequality through a progressive system.
Income vs. Capital
- Income is a flow of wealth, while capital is a fund or property.
Taxability of Income: Three Requisites
- Gain or profit must be realized or received.
- It must not be excluded by law or treaty.
Taxability Tests
- Flow of Wealth Test: Did a gain result from the transaction?
- Realization Test: Was the transaction closed and completed?
- Economic-Benefit Principle: Was the taxpayer economically benefited?
Examples of Income and Non-Income
- Income includes found treasure, punitive damages, damages for breach of contract, collected worthless debts, non-cash benefits, illegal income, prizes, and scholarships/fellowships (sometimes).
- Stock dividends are not income (they represent increased capital ownership).
- Tax refunds are generally not income (unless a previous deduction is involved).
Realized/Received Income
- Realized implies a completed transaction; unrealized appreciation is not taxable.
- Received includes actual and constructive receipt.
- Constructive receipt occurs when income is credited or set aside for the taxpayer without substantial restrictions.
Systems of Taxing Income
- Global System: All income categories taxed similarly; used for corporations.
- Schedular System: Different income categories have varying tax rates; used for individuals.
- 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 or not engaged in business).
- Corporations: Domestic corporations, resident foreign corporations, non-resident foreign corporations.
- Partnerships
- Estates and Trusts
Non-Resident Citizens
- A citizen physically present abroad with intent to reside there.
- A citizen leaving the Philippines permanently for work or immigration.
- A citizen working abroad most of the taxable year.
- A former non-resident citizen returning to permanently reside in the Philippines.
Aliens (Resident and Non-Resident)
- Resident Aliens: Residence is within the Philippines, but not a citizen.
- Non-Resident Aliens: Residence is outside the Philippines and not a citizen. Those staying over 180 days are considered engaged in business.
Corporations
- Domestic Corporations: Created or organized in the Philippines.
- Resident Foreign Corporations: Foreign corporations engaged in business in the Philippines (branches, representative offices, regional headquarters).
- Non-Resident Foreign Corporations: Foreign corporations not engaged in business in the Philippines.
Joint Ventures
- Joint ventures for construction or energy projects under government contracts are not considered corporations.
Partnerships
- Ordinary Business Partnerships: Taxed as corporations.
- General Professional Partnerships (GPPs): Partners are taxed individually; formed solely to practice a profession and without income derived from trade or business. Each partner’s share is reported as income.
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Description
Test your understanding of income tax return terminologies, exemptions, and the process of paying taxes. This quiz covers key aspects of filing personal and corporate income tax returns and how to determine your taxable year. Perfect for anyone looking to improve their knowledge of tax regulations.
