Income Taxation Topic 4: Graduated Tax Table for Self-Employed Individuals and Professionals

Study Notes

Self-Employed Individuals and Professionals (SEPs)

Self-employed individuals and professionals are traditionally known as the "hard-to-tax" group and are under strict scrutiny by the Bureau of Internal Revenue (BIR).
Self-employment income is defined as earnings derived from the practice of a profession or conduct of trade or business carried on by an individual as a sole proprietor or by a partnership of which they are a member.

8% Optional Income Tax for SEPs

The 8% income tax rate is a new law requiring sole proprietorship and professionals who are PRC registered to pay 8% tax on gross income.
The 8% tax will be imposed on gross receipts less allowable expenses if you are a professional.

Passive Income

Passive income is income earned with no active participation from the taxpayer.
Examples of passive income include:
- Interests from currency bank deposits, trust funds, deposit substitutes, and similar arrangements
- Royalties from owning intellectual property
- Dividends from holding shares from a company
- Capital gains realized from the sale/disposition of a financial asset, sale of shares of stock and sale of real property
- Prizes/winnings

Final Withholding Tax

Final Withholding Tax is a kind of withholding tax which is prescribed only for certain payors and is not creditable against the income tax due of the payee for the taxable year.

Capital Gains Tax

Capital Gains Tax is a tax imposed on the gains presumed to have been realized by the seller from the sale, exchange, or other disposition of capital assets located in the Philippines.

Creditable vs Final Tax

A final tax represents the full and final payment of the income tax that is due from a taxpayer.
A creditable tax is a preliminary payment of the tax liability of the taxpayer.

Quarterly Tax Returns

The following individuals must file quarterly tax returns regardless of the amount of gross income:
- A resident citizen engaged in trade, business, or practice of profession within and without the Philippines
- A resident alien, non-resident citizen or non-resident alien individual engaged in trade, business or practice of profession within the Philippines
- A trustee of a trust, guardian of a minor, executor/administrator of an estate, or any person acting in any fiduciary capacity for any person

Income Tax for Married Individuals

Married individuals shall file a return for the taxable year to include the income of both spouses, computing separately their individual income tax based on their respective total taxable income.

Senior Citizens and PWDs

Senior citizens and persons with disability shall be entitled to the grant of 20% discount and VAT-exemption on the purchase of certain goods and services from all establishments for their exclusive use, enjoyment or availment.

Minimum Wage Earners

Minimum wages have been defined as the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract.

Description

Prepare for your midterms with this review of Topic 4, focusing on the graduated tax table for self-employed individuals and professionals. Understand the definitions and regulations surrounding self-employment income according to the National Internal Revenue Code (NIRC) of 1997.