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Questions and Answers
Accommodation checks are permitted for tax payment.
Accommodation checks are permitted for tax payment.
False (B)
Income tax is primarily a tax on the privilege of earning income.
Income tax is primarily a tax on the privilege of earning income.
True (A)
Tax payments can be made using a combination of checks and cash.
Tax payments can be made using a combination of checks and cash.
True (A)
A stale check is defined as one dated more than 3 months prior to presentation.
A stale check is defined as one dated more than 3 months prior to presentation.
The income tax return is a document where the taxpayer reports solely their assets and liabilities.
The income tax return is a document where the taxpayer reports solely their assets and liabilities.
The requisites for taxability of income include gain or profit, realized or received, and not excluded by law.
The requisites for taxability of income include gain or profit, realized or received, and not excluded by law.
Postdated checks are acceptable for tax payments.
Postdated checks are acceptable for tax payments.
For a taxable year, individuals can be exempt from filing an income tax return if their income has been subjected to final withholding income tax.
For a taxable year, individuals can be exempt from filing an income tax return if their income has been subjected to final withholding income tax.
The taxable year can only be defined as a calendar year running from January to December.
The taxable year can only be defined as a calendar year running from January to December.
The nature of income tax is considered self-assessing or self-computed.
The nature of income tax is considered self-assessing or self-computed.
Individuals with compensation income derived from sources within the Philippines are required to file an income tax return if the tax has been correctly withheld.
Individuals with compensation income derived from sources within the Philippines are required to file an income tax return if the tax has been correctly withheld.
Only one check is allowed for multiple tax returns and periods.
Only one check is allowed for multiple tax returns and periods.
The general payment rule for taxes is a pay-as-you-file system.
The general payment rule for taxes is a pay-as-you-file system.
The process of paying taxes includes computation, filing, and payment.
The process of paying taxes includes computation, filing, and payment.
Corporations contemplating reorganization are automatically exempt from the pay-as-you-file rule.
Corporations contemplating reorganization are automatically exempt from the pay-as-you-file rule.
Payments of taxes can only be made electronically and not through any physical means.
Payments of taxes can only be made electronically and not through any physical means.
The sale of tickets through a sales agent produces no income for Philippine Air Lines.
The sale of tickets through a sales agent produces no income for Philippine Air Lines.
A mere increase in the value of property constitutes taxable income.
A mere increase in the value of property constitutes taxable income.
Constructive receipt refers to income that can be drawn upon by the taxpayer at any time.
Constructive receipt refers to income that can be drawn upon by the taxpayer at any time.
Punitive damages are considered taxable income under the economic-benefit principle.
Punitive damages are considered taxable income under the economic-benefit principle.
Stock dividends are automatically classified as taxable income for stockholders.
Stock dividends are automatically classified as taxable income for stockholders.
Tax refunds are considered income under all circumstances.
Tax refunds are considered income under all circumstances.
Interest coupons that have matured but have not been cashed qualify as income received.
Interest coupons that have matured but have not been cashed qualify as income received.
Non-cash benefits are not classified as income under the economic-benefit principle.
Non-cash benefits are not classified as income under the economic-benefit principle.
The global system of taxing income treats all categories of taxable income in the same manner.
The global system of taxing income treats all categories of taxable income in the same manner.
The schedular system prescribes a flat rate for all forms of income.
The schedular system prescribes a flat rate for all forms of income.
In the Philippines, individuals are primarily taxed under the global taxation approach.
In the Philippines, individuals are primarily taxed under the global taxation approach.
A non-resident citizen of the Philippines is someone who physically resides in the country but is not a citizen.
A non-resident citizen of the Philippines is someone who physically resides in the country but is not a citizen.
Resident aliens are individuals who are citizens of the Philippines.
Resident aliens are individuals who are citizens of the Philippines.
A citizen who leaves the Philippines for employment abroad is classified as a non-resident alien.
A citizen who leaves the Philippines for employment abroad is classified as a non-resident alien.
Trusts are categorized as one of the income taxpayers under the taxation system in the Philippines.
Trusts are categorized as one of the income taxpayers under the taxation system in the Philippines.
Non-resident aliens are individuals who have their residence outside the Philippines and are not Philippine citizens.
Non-resident aliens are individuals who have their residence outside the Philippines and are not Philippine citizens.
A non-resident alien who stays in the Philippines for more than 120 days is deemed to be engaged in trade or business.
A non-resident alien who stays in the Philippines for more than 120 days is deemed to be engaged in trade or business.
A domestic corporation is defined as a corporation created under the laws of the Philippines.
A domestic corporation is defined as a corporation created under the laws of the Philippines.
A general professional partnership (GPP) derives income from engaging in trade or business.
A general professional partnership (GPP) derives income from engaging in trade or business.
Partners in an ordinary business partnership are considered stockholders with taxable profits treated as dividends.
Partners in an ordinary business partnership are considered stockholders with taxable profits treated as dividends.
A joint venture formed for energy operations will be considered a corporation for tax purposes.
A joint venture formed for energy operations will be considered a corporation for tax purposes.
Non-resident foreign corporations are corporations that engage in trade or business within the Philippines.
Non-resident foreign corporations are corporations that engage in trade or business within the Philippines.
The Philippine representative office of a foreign corporation is categorized as a resident foreign corporation.
The Philippine representative office of a foreign corporation is categorized as a resident foreign corporation.
Each partner in a general professional partnership must report their gross income as the total income of the partnership.
Each partner in a general professional partnership must report their gross income as the total income of the partnership.
Study Notes
Income Tax Return Terminologies
- A tax return is a sworn statement declaring tax liability for a taxable year, with perjury penalties for inaccuracies.
- An income tax return reports income and allowable deductions.
- BIR Form 1701 is for individuals, and BIR Form 1702 is for corporations.
- Individuals with solely withheld compensation income, final withholding tax income, or income tax exemptions are exempt from filing.
Taxable Year
- A taxable year is a 12-month accounting period.
- It can be a calendar year (January–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 a BIR Revenue District Office (RDO) or electronic (eFPS or e-BIR forms).
- Payment is generally pay-as-you-file, except for income tax over ₱2,000 (two installments allowed), corporations undergoing dissolution/liquidation/reorganization, deficiency assessments, or terminated tax periods.
- Electronic payment methods include eFPS, PhilPASS, debit/credit/prepaid cards, GCash, and bank debit systems.
- Over-the-counter payment is via Authorized Agent Banks (AABs), with cash limits of ₱10,000. Checks are also accepted.
Check Tax Payments
- One check per tax return and period is the standard. Multiple checks or a combination of check and cash are allowed.
- Personal bank appearance isn't needed.
- Manager's checks and cashier's checks are allowed.
- Accommodation checks, second indorsed checks, stale checks, postdated checks, unsigned checks, and checks with alterations/erasures are prohibited.
Income Tax Nature and Functions
- Income tax is a tax on income from various sources, less deductions and exemptions.
- It's a tax on the privilege of earning income, not a tax on persons, property, funds, or profits.
- It's primarily for revenue generation, offsets regressive taxes, and mitigates income inequality through a progressive system.
Income vs. Capital
- Income is wealth flowing to a taxpayer, excluding capital returns.
- Capital is a fund or property used to produce goods/services.
Taxability of Income: Three Requisites
- Gain or profit must be realized or received.
- It must not be excluded by law or treaty.
Taxability of Income: Three Tests
- Flow of wealth test: Determines if profit was derived from a transaction.
- Realization test: Requires a closed and completed transaction.
- Economic benefit principle: Taxes only the economically beneficial portion of realized wealth.
Income Examples
- Found treasure, punitive damages, breach of promise damages, collected worthless debts, non-cash benefits, illegal income, giveaway prizes (are considered income).
- Stock dividends (may or may not be income), tax refunds (generally not income) are NOT always taxable.
Realized/Received Income
- Realized income implies not all economic gains are taxable (e.g., unrealized capital appreciation).
- Received income includes actually received or constructively received income.
- Constructive receipt means income credited to or set aside for a taxpayer, even if not yet withdrawn.
Constructive Receipt
- Income is considered constructively received if there are no substantial limitations on its access.
- Examples include matured but uncashed interest coupons and undistributed partnership profits.
Global vs. Schedular Tax Systems
- Global systems tax all income categories uniformly.
- Schedular systems vary tax treatment based on income type.
- The Philippines uses a mixed schedular and global approach (schedular for individuals, global for corporations).
Classes of Income Taxpayers
- Individuals (resident citizens, non-resident citizens, resident aliens, non-resident aliens engaged/not engaged in trade)
- Corporations (domestic, resident foreign, non-resident foreign)
- Partnerships
- Estates and trusts
Non-Resident Citizens
- Defined by factors like physical presence abroad with intent to reside, leaving for permanent residence abroad, working abroad for most of the year, or returning to the Philippines after previous non-resident status.
Resident vs. Non-Resident Aliens
- Resident: Resides in the Philippines but is not a citizen.
- Non-resident: Does not reside in the Philippines and is not a citizen. A non-resident alien is considered engaged in trade in the Philippines if they stay for over 180 days in a calendar year.
Corporations
- Domestic: Created or organized in the Philippines.
- Resident foreign: Engaged in business within the Philippines (branches, offices, headquarters).
- Non-resident foreign: Not engaged in business within the Philippines.
Joint Ventures
- Joint ventures for construction or energy operations under government contracts are not considered corporations.
Partnerships
- Ordinary business partnerships are taxed as corporations.
- General professional partnerships (GPPs) are taxed individually by each partner; partners only pay tax on their individual share of net income. GPP requirements are that the partnership is formed solely to exercise a profession and does not engage in business.
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Test your knowledge on the key terms and processes related to income tax returns. This quiz covers tax return definitions, taxable year concepts, and payment processes. Ideal for individuals and corporations navigating tax obligations.
