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Questions and Answers
Under RA 10963 (TRAIN Law), what is a defining characteristic of a self-employed individual?
Under RA 10963 (TRAIN Law), what is a defining characteristic of a self-employed individual?
- They primarily earn income through employer-employee relationships.
- They are certified by a professional body and belong to a specific profession.
- They report income earned from self-employment and control how and when their work is done. (correct)
- They are employed by a company but also have a side business.
Which of the following accurately describes a 'professional' according to the provided definitions?
Which of the following accurately describes a 'professional' according to the provided definitions?
- Someone who engages in any hobby for monetary gain.
- An individual certified by a professional body, demonstrating competence through established standards. (correct)
- Anyone who receives fees for promotional activities.
- A person who derives income purely from employment.
For self-employed professionals, what are the two primary types of taxes they are obligated to pay?
For self-employed professionals, what are the two primary types of taxes they are obligated to pay?
- Capital Gains Tax and Documentary Stamp Tax
- Excise Tax and Value Added Tax
- Income Tax (Graduated Rate) and Business Tax (Percentage Tax or VAT) (correct)
- Estate Tax and Gift Tax
Kico operates a convenience store with gross sales of P800,000 and provides bookkeeping services with receipts of P300,000. Cost of sales is P600,000, and operating expenses are P200,000. If Kico opted for the 8% income tax rate, what is his income tax due?
Kico operates a convenience store with gross sales of P800,000 and provides bookkeeping services with receipts of P300,000. Cost of sales is P600,000, and operating expenses are P200,000. If Kico opted for the 8% income tax rate, what is his income tax due?
In the scenario where Kico fails to signify his intention to be taxed at the 8% income tax rate in his first quarterly return, how is his income tax liability determined?
In the scenario where Kico fails to signify his intention to be taxed at the 8% income tax rate in his first quarterly return, how is his income tax liability determined?
Vam earns P2,500,000 annually as an executive and owns a store with gross sales of P2,400,000, cost of sales of P1,000,000, operating expenses of P600,000, and non-operating income of P100,000. Assuming Vam chose the 8% income tax rate, what is his total income tax due, considering the income tax threshold?
Vam earns P2,500,000 annually as an executive and owns a store with gross sales of P2,400,000, cost of sales of P1,000,000, operating expenses of P600,000, and non-operating income of P100,000. Assuming Vam chose the 8% income tax rate, what is his total income tax due, considering the income tax threshold?
When is the 8% income tax rate applicable for self-employed individuals?
When is the 8% income tax rate applicable for self-employed individuals?
Which of the following businesses with the stated annual gross income is eligible for the 8% income tax rate, assuming they are not VAT registered?
Which of the following businesses with the stated annual gross income is eligible for the 8% income tax rate, assuming they are not VAT registered?
How do Percentage Tax and Value Added Tax (VAT) differ in terms of applicability to businesses?
How do Percentage Tax and Value Added Tax (VAT) differ in terms of applicability to businesses?
A professional is considering whether to register for VAT. What factor should primarily influence this decision?
A professional is considering whether to register for VAT. What factor should primarily influence this decision?
Flashcards
Self-Employed Definition
Self-Employed Definition
A sole proprietor or independent contractor who reports income earned from self-employment and controls how and when the work is done.
Definition of a Professional
Definition of a Professional
A person formally certified by a body, with competence measured against standards; earns money from art/sport as livelihood.
Percentage Tax
Percentage Tax
Tax rate applied to gross sales/receipts less than or equal to P3 million and non-VAT registered.
Value Added Tax (VAT)
Value Added Tax (VAT)
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Tax Obligations of Self-Employed
Tax Obligations of Self-Employed
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Study Notes
- Self-employed individuals are defined under RA 10963 (TRAIN Law) as sole proprietors or independent contractors who report income earned from self-employment.
- Self-employed individuals control how they work, when the work is done and whose income is purely derived from profession and not under an employer-employee relationship.
- A professional is formally certified by a professional body, belonging to a specific profession, and has completed a required course of studies and/or practice.
- A professional's competence can usually be measured against an established set of standards and they engage in some art or sport for money, as a means of livelihood, rather than as a hobby.
- Professionals include entertainers, athletes, directors, producers, insurance agents/adjusters, management/technical consultants, bookkeepers, and other recipients of professional, promotional, and talent fees.
- A self-employed professional's tax obligations are income tax (graduated rate) and business tax (percentage tax or VAT).
Percentage Tax vs. VAT
- Percentage tax is applicable if annual gross sales/receipts are less than or equal to P3 million and the entity is non-VAT registered.
- VAT is applicable if annual gross sales/receipts are greater than P3 million and the entity is VAT registered.
Illustration 1
- Kico operates a convenience store with gross sales of P800,000 in 2024 and offers bookkeeping services with receipts of P300,000.
- Kico incurred cost of sales and operating expenses amounting to P600,000 and P200,000, respectively.
- Kico signified intention to be taxed at 8% income tax rate in the 1st quarter return.
Illustration 2
- Situation: Kico failed to signify intention to be taxed at 8% income tax rate in the 1st quarter return.
Illustration 3 – Mixed Income Earner
- Vam is an executive of Buhay Angat Corporation with annual compensation income of P2,500,000.
- Vam owns a convenience store with gross sales of P2,400,000 and cost of sales/operating expenses of P1,000,000/P600,000 respectively, with non-operating income of P100,000.
- Vam signified the intention to be taxed in the 1st quarter return.
Illustration 4 – 8% Tax, When Applicable?
Agricultural Contract Grower
- An agricultural contract grower with annual gross income of P3,000,000.
- An agricultural contract grower with annual gross income of P5,000,000.
Poultry Feeds Dealer
- A poultry feeds dealer with annual gross sales of P3,000,000.
- A poultry feeds dealer with annual gross sales of P5,000,000.
Specialty Feeds Dealer
- A specialty feeds dealer with annual gross sales of P2,800,000.
- A specialty feeds dealer with annual gross sales of P2,800,000 and is VAT Registered.
- A specialty feeds dealer with annual gross sales of P5,000,000.
Restaurant Business
- A restaurant business with annual gross sales of P2,800,000.
- A restaurant business with annual gross sales of P2,800,000 and is VAT Registered.
- A restaurant business with annual gross sales of P5,000,000.
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