midterm%20tax.pptx

midterm%20tax.pptx

• 1.
  Income Tax Schemes, AccountingPeriods, Accounting Methods, & Reporting
• 2.
  INCOME TAXATION SCHEMES
• 3.
  Three Income Taxation Schemes 1.FinalIncome Taxation 2.Capital Gains Taxation 3.Regular Income Taxation
• 4.
  Item of GrossIncome- > taxable item of income Item of Gross income Note: *An item of gross income that is subject to tax in one scheme will not be taxed by other schemes. *An item of income that is exempted in one scheme is not taxable by the other schemes. Taxable to any of the following: 1. Final Income Taxation 2. Capital Gains Taxation 3. Regular Income Taxation
• 5.
  Classification of Itemsof Gross Income 1.Gross income subject to tax 2.Gross income subject to capital gains tax 3.Gross income subject to regular tax
• 6.
  Final Income Taxation •Therecipients of the income receives the income net of tax •The payor remits the tax to the government •The recipient of the income does not need to file an income tax return •Applicable only on certain passive income •Not all items of passive income are subject to final tax
• 7.
  Difference between PassiveIncome and Active Income Passive income Earned with very minimal or even without active involvement of the taxpayer Examples: 1. Interest income from banks 2. Dividends from domestic corporations 3. Royalties Active Income Earned with a considerable degree of effort or undertaking from the taxpayer Examples: 1. Compensation income- received under an employer- employee relationship, income from employment 2. Business income 3. Professional income
• 8.
  Capital Gains Taxation •Imposed on the gain realized on the sale, exchange and other dispositions of certain capital assets • Ordinary Assets- assets used in business, trade or profession, are assets held for sale (inventory) and assets held for use (supplies, PPE) • Capital Assets- assets other than ordinary assets - capital assets are: 1. Personal assets of individual taxpayers 2. Business assets of any taxpayer which are: a. Financial Assets- such as cash, receivables, prepaid expenses and investments b. Intangible assets- such as patents, copyright, leasehold rights and franchise rights.
• 9.
  NOTE! • Not allcapital gains are subject to capital gains tax •Most of capital gains are subject to regular income tax • The taxpayer still files capital gains tax return to report the capital gain and pay the tax to the government • Capital gains taxation applies only to 2 types of capital assets: 1. Domestic stocks 2. Real property
• 10.
  Regular Income Taxation •General rule in income taxation • Covers all other income such as 1. Active income 2. Other income a. Gains from dealings in properties not subject to capital gains tax b. Other passive income not subject to final tax Items of gross income from these sources are valued or measured using an accounting method, accumulated over an accounting period and reported to the government through an income tax return.
• 11.
  Accounting period •Accounting periodis the length of time over which income is measured and reported.
• 12.
  Types of AccountingPeriod • Regular accounting period- length is 12 months 1. Calendar accounting period- starts in January 1 and ends in December 1 - available to both corporate taxpayers and individual taxpayers • Under the NIRC, the calendar accounting period shall be used when the: taxpayer's annual accounting period is other than a fiscal accounting period taxpayer has no annual accounting period taxpayer does not keep books taxpayer is an individual 2. Fiscal Accounting period- ends on any day other than December 31 - example: February 1- January 31 - available only to corporate income taxpayers • Short accounting period- length is less than 12 months
• 13.
  Deadline of Filingthe Income Tax Return - On the 15th day of the fourth month following the close of the taxable year of the taxpayer. - Regular tax due- payable upon filing Example 1: Who: Taxpayers using calendar year (whether individual taxpayer or corporate taxpayer) What to file: Annual income tax return for the current period When to file: Not later than April 15 of the following year. Annual income tax return for 2022 ( January 1, 2022 to December 31, 2022) - file this on or before April 15, 2023 The 15th day of the fourth month after December 31, 2022 is April 15, 2023
• 14.
  Example 2: Who: Corporatetaxpayer using fiscal year ending April 30, 2020 (started on May 1, 2019) What to file: Annual income tax return covering May 1, 2019 to April 30, 2020 When to file: Not later than August 15, 2019 The 15th day of the fourth month after April 30, 2020 is August 15, 2020. The annual income tax return covering May 1, 2019 to April 30, 2022 must be filed on or before August 15, 2020.
• 15.
  Instances of Shortaccounting period • Newly commenced business - The accounting period covers the date of the start of the business until the designated year- end of the business Example: ABC, Inc. started its business operation on April 1, 2019 and opted to use the calendar year accounting period. Date of start of the business: April 1, 2019 Designated year- end of the business: December 31, 2019 ABC, Inc. should file its first income tax return covering April 1, 2019 to December 31, 2019. Filing of income tax return: on or before April 15, 2020
• 16.
  • Dissolution ofbusiness - The accounting period covers the start of the current year to the date of dissolution of the business Example: ABC, Inc. is on the fiscal year accounting period ending very March 31. Its ceased business operation on August 15, 2019. Start of the current year: April 1, 2019 Date of dissolution: August 15, 2019 ABC, Inc. should file its last income tax return covering April 1, 2019 to August 15, 2019. Under the old NIRC, dissolving corporations shall file their return within 30 days from the cessation of the activities or 30 days from the approval of merger by the SEC in the case of merger. (Within 30 days from the cessation of activities) Filling of income tax return: on or before September 15, 2019. If filed later than September 15, 2019 there is a penalty for late filing. For individuals, the return shall be due on or before April 15, 2020.- not eligible to use fiscal year
• 17.
  • Change ofaccounting period by corporate taxpayers - The accounting period covers the start of the previous accounting period up to the designates year-end of the new accounting period. Note that BIR approval is required in changing an accounting period. It is not automatic Example 1: change from calendar accounting period to fiscal accounting period. Effective February 2019, ABC, Inc. changed its calendar accounting period to a fiscal year ending every June 30. Start of the previous accounting period: January 1, 2019 Designated year end of the new accounting period: June 30, 2019 ABC, Inc. shall file an adjustment return covering the income from January 1, 2019 to June 30, 2019. Filing: on or before October 15, 2019
• 18.
  Example 2: Changefrom fiscal accounting period to calendar accounting period Effective August 2019, ABC, Inc changed its fiscal year accounting period ending every June 30 to a calendar year Start of the previous accounting period: July 1, 2019 Designated year end of new accounting period: December 31, 2019. ABC, Inc. shall file an adjustment return covering the income from July 1, 2019 to December 31, 2019. Filing: on or before April 15, 2020.
• 19.
  • Death ofthe taxpayer - The accounting period covers the start of the calendar year until the death of the taxpayer. Example: Mr. Bean died on November 1, 2019. Start of the calendar year: January 1, 2019 Date of death of the taxpayer: November 1, 2019 The heirs of Mr. Bean or his estate administrators or executors should file his last income tax return covering his income from January 1, 2019 to November 1, 2019. Filing of Income Tax Return: on or before April 15, 2020
• 20.
  • Termination ofthe accounting period of the taxpayer by the Commissioner of Internal Revenue - The accounting period covers the start of the current year until the date of the termination of the accounting period. Example: The accounting period of a taxpayer using calendar year was terminated by the CIR on August 2, 2019. Start of the current year: January 1, 2019 Date of termination: August 2, 2019 The taxpayer must file an income tax return covering January 1, 2019 to August 2, 2019. The income tax return and the tax shall be due and payable immediately.