Compensations

Business Professional
Individual Earning Business
Computing Income Tax for individuals
or Professionals
Gross Income-all your income from all your
Gross Sales
sources (annual salary, salary from side-line,
income of business
you just found along the road)
(if services: gross
receipts)
Less: Expenses
(COS, Operating
Expenses)
Less: Basic Personal Exemption represents the portion of your
income that is supposed to be for your basic needs (standard 50,000 pesos)
Our needs
Less: Additional Exemption- cannot be claimed by both parents;
general rule only the father (25,000 pesos per child, limit of 4 children)
Needs of our Children

Less: Premium in Health or Hospitalization Insurance -

2 Rules
The income of the Family should not exceed 250,000 pesos
Not allowed to deduct more than 200/month or 2,400/year)

Taxable Income
Total Income Tax Due- After we computing based on Tax
Table
Less: Tax Credit- excess taxes paid in the previous year

Tax Liability

The lower the

declared income, the
lower the tax to be
paid.

Itemized Deductions

Less: Expenses
(COS, Operating
Expenses)

Less: Premium in Health or Hospitalization Insurance -

2 Rules
The income of the Family should not exceed 250,000 pesos
Not allowed to deduct more than 200/month or 2,400/year)

Itemized Deductions vs OSD/ Optional Standard

Deduction
Itemized Deductions:
a)
Expenses
b)
Salaries
c)
Interest *
d)
Travel
e)
Rental expenses
f)
Entertainment expenses *
g)
Taxes *
h)
Losses
i)
Bad Debts *
j)
Depreciation
k)
Depletion of Oil and Gas Wells and Mines
l)
Charitable Contributions and Other Contributions *
m) Research and Development
n)
Pension Trusts
o)
Premium payments on health/ or hospitalization insurance *
p)
and other expenses that may be allowed as itemized deductions by the
NIRC

OSD/ Optional Standard Deduction

-

40% of Gross Sales / Gross Receipts / Gross Income

for

individual taxpayers

and

corporation

Fringe Benefits
-

any good, service or any benefit furnished or granted by an

employer in cash or in kind to an individual managerial or
supervisory employee; granted in addition to basic salary
Examples: 1. Housing; 2. Expense Accounts (Meal allowances,
Transportation allowances and Representation allowances); 3.
Vehicle (of any kind); 4. Household Expenses (such as those that are
given to maids, drivers and others that shouldered by the employer for the
employee); 5. Interest Foregone (ex. You give your employees cash
advances and you dont give them an interest equivalent to the cash
advance) should be at the Market Rate 12%; 6. Membership Fees in
social or athletic clubs which are given by the employer for the employee for
the exclusive use of the employee and not the company as a whole or other
similar organization; 7. Expenses for Foreign Travel; 8. Holiday and
Vacation Expenses that should be paid by the employer for the employee;
9. Educational Assistance for independents; 10. Life or health
Insurance)
final tax
Gmv (Grossed-up monetary value)
Granted to an employer to an employee who holds a managerial or
supervisory position
Regardless whether an individual, a professional partnership, or a corporation
(regardless whether taxable or not)
Do not cover benefits on compensation income because it is subject to
withholding taxation because it is granted to rank and file employees

32%
FBT=GMV x 32% -payable to BIR
GMV=MV/68%
MV(Monetary Value)=
if the fringe benefits is granted in money, then the value granted is
the Monetary Value
if the fringe benefits is granted in property and ownership is
transferred to the employee, then the value of fringe benefit is the
Fair Market Value of the property

if the fringe benefits is granted in property but ownership is not

transferred, then the value of the fringe benefit is equal to the
Depreciation Value of the property

Fringe Benefits (MV/68%)

Cash in Bank (actual Fringe Benefit given)
FBT Payable (Computed Fringe Benefit Tax Payable)