📘 Discussion Questions
1. Discuss the scope of the regular income tax, especially on passive income and
capital gains.
2. Enumerate the characteristics of the regular income tax.
3. What are exclusions in gross income?
4. Distinguish allowable deductions from personal exemption.
5. Demonstrate the computation of the gross income from employment and the gross
income from business or exercise of a profession.
6. How is cost of goods sold determined?
7. What are included in cost of services?
8. What composes the compensation income of a rank-and-file employee and a
managerial or supervisory employee?
9. How does the tax presentation of gross income in the tax return differ between
individuals and corporate taxpayers?
10.Distinguish "other taxable income from operations" from non-operating income.
11.Distinguish revenue from sales, fees, and receipts.
12.Discuss how the taxable income of the following is determined:
a. Corporate taxpayer
b. Purely compensation earner
c. Purely business or professional income earner
d. Mixed income earner
13.Discuss the treatment of net loss from business or exercise of profession.
14.What are the deadlines for the quarterly regular income tax for individuals and
corporations?
📘 True or False 1 (Questions Only)
1. The ₱250,000 income tax exemption for individuals is designed to be in lieu of their
personal and business expenses.
2. There are two types of regular income tax: proportional income tax for corporations
and progressive income tax for individuals.
3. NRA-NETBs and NRFCs are also subject to regular income tax.
4. All taxpayers are subject to final tax.
5. Taxable income is synonymous with net income.
6. For all taxpayers, taxable income means the pertinent items of gross income not
subject to capital gains tax and final tax less allowable deductions.
7. All taxpayers are subject to regular income tax.
8. Employed taxpayers can claim expenses from their employment as deductions
against their compensation income.
9. Items of gross income subject to final tax and capital gains tax are excluded from
gross income subject to regular income tax.
10.Non-taxable compensation are items of compensation that are excluded against
gross income.
📘 True or False 2 (Questions Only)
1. The tax due of corporations is determined by multiplying their total gross income by
25%.
2. The taxable compensation income is computed as gross compensation less the
non-taxable compensation income.
3. The deadline for filing the corporate quarterly income tax return is the same as the
deadline for the quarterly income tax return of individuals.
4. Business expenses can be deducted against all types of gross income subject to
regular tax.
5. No deduction shall be allowed against taxable income.
6. Only corporations may incur deductions against gross income.
7. The gross income from business is measured as sales or gross receipts less cost of
sales or cost of services.
8. The tax due of individuals is determined by means of a schedule of tax rates.
9. The deadline of the annual income tax return of corporations using the calendar year
is similar to the deadline fixed for individual taxpayers.
10.Every individual taxpayer is exempt from income tax on compensation up to
₱250,000 annually, but the same exemption does not apply to business income.
Multiple Choice – Theory: Part 1
1. Which is not generally subject to regular income tax?
a. Compensation income
b. Business income
c. Professional income
d. Passive income
2. The general rule in income taxation is:
a. Final income taxation
b. Capital gains taxation
c. Regular income taxation
d. Fringe benefit taxation
3. Active income is subject to:
a. Regular tax
b. Capital gains tax
c. Final tax
d. Any of these
4. Question 3 and 4 are based on the following:
A. Regular tax
B. Final tax
C. Capital gains tax
5. Which of the foregoing are passive incomes subject to?
a. A only
b. B only
c. Both A and B
d. Either A or B
6. Which of the foregoing are capital gains subject to?
a. A only
b. C only
c. Either A or C
d. Both A and C
7. The net amount of regular income subject to regular tax is called:
a. Taxable income
b. Compensation income
c. Net income
d. Gross income
8. What are allowable deductions against gross income?
a. Business expenses
b. Family support
c. Personal expenses by the taxpayer
d. Expenses of employment
9. Deductions are allowed to:
a. Employed taxpayers
b. Individual taxpayers only
c. Corporate taxpayers only
d. Taxpayers engaged in business
10.Personal expenses are:
a. Non-deductible by employed taxpayers
b. Non-deductible by any taxpayer
c. Deductible by employed taxpayers
d. Deductible by any individual taxpayer
11.Which is not a feature of the regular income tax?
a. Net income tax
b. Final withholding tax
c. Annual tax
d. Creditable withholding tax
12.Which is true with the final withholding tax?
a. The taxpayer still needs to file an annual consolidated return
b. It applies to all items of gross income
c. It constitutes a partial payment of income tax
d. It applies to certain passive income
13.Which is not true with the creditable withholding tax?
a. Advances to the annual tax due
b. No need to pay further taxes
c. Need to file annual income tax return
d. Applicable to items of regular income
14.Progressive income tax is applicable to:
a. Corporate taxpayers
b. Individual taxpayers
c. Compensation earners only
d. Individuals in business only
15.Proportional regular income tax is applicable to:
a. Corporations only
b. Compensation earners only
c. Individuals engaged in business
d. Both individuals and corporations
16.Which of the following individual taxpayers is not subject to tax on taxable income?
a. Non-resident citizen
b. Resident alien
c. NRA-NETB
d. Non-resident alien engaged in business
17.Which of the following corporate taxpayers is not subject to tax on taxable income?
a. Domestic corporation
b. Business partnership
c. Non-resident foreign corporation
d. Resident foreign corporation
18.Which is a source of income subject to regular income tax?
a. Employment
b. Casual sales transactions
c. Trade or business or exercise of a profession
d. All of these
19.Which interest income will not be included in the income tax return?
a. Interest income from bank deposits
b. Interest income from lending
c. Interest income from notes
d. Interest income from employees
20.Which is not subject to final tax?
a. Prizes amounting to ₱11,000
b. Interest income from bank deposits
c. Winnings from the Philippines
d. Share in the net income of general professional partnership
21.Which of the following is a passive income but is nevertheless subject to regular tax
by virtue of exclusion under final income taxation?
a. Prizes amounting to ₱10,000
b. Service income
c. Merchandising income
d. Dividends from domestic corporations
Multiple Choice – Theory: Part 2
1. Which is an incorrect statement?
a. Business expenses are deductible by individuals and corporations
b. Purely employed taxpayers are not allowed deductions from gross income
c. Personal expenses are deductible by individuals, estates, and trusts
d. Deductions are considered in the determination of net income
2. The following may be relevant in the determination of taxable income:
A. Gross income subject to regular tax
B. Gross income subject to final tax
C. Deductions from gross income
D. Exclusions from gross income
Which is not considered in the determination of taxable income?
a. A and B
b. C and D
c. A and C
d. B and D only
3. Which is a correct statement regarding exclusions in gross income?
a. They are included in gross income subject to regular income tax
b. They are ignored in the determination of gross income
c. They are presented in gross income but are presented as deductions
d. They are subject to final tax
4. Which of these types of employees may be subject to final fringe benefit tax?
a. Managerial employees
b. Supervisory employees
c. Rank and file employees
d. A and B
5. Which is not considered an operating income?
a. Consignment commission income by a retail store
b. Fees from the rendering of services
c. Interest income from advances to employees
d. Sale of scrap
6. Which is a non-operating income?
a. Gain on sale of office building
b. Sale of goods by a retail store
c. Gate receipts of cockpits
d. Gate receipts of cinemas
7. Which of the following will least likely be considered an operating income of a
security dealer?
a. Gain on sale of stocks
b. Gain on sale of bonds
c. Dividend income from domestic corporation
d. Interest income from bonds
8. The distinction between operating and non-operating income is not required in the
income tax return of:
a. Self-employed individuals in business
b. Mixed income earners
c. Self-employed professionals
d. Purely employed individuals
9. The reporting classification of gross income into operating and non-operating is
unnecessary for:
a. Corporate taxpayers
b. Individual taxpayers
c. Both A and B
d. Neither A nor B
10.Which is not part of compensation income?
a. Basic pay of rank and file employees
b. Fringe benefits of managerial and supervisory employees
c. Basic pay of managerial or supervisory employees
d. Fringe benefits of rank and file employees
Here are the remaining questions (Items 11–34) from Multiple Choice – Theory: Part 2,
formatted cleanly and without answers (as requested):
Multiple Choice – Theory: Part 2 (continued)
11.Who cannot claim deductions?
a. Employed taxpayers
b. Self-employed taxpayers in business
c. Self-employed professionals
d. B and C
12.Who are required to file quarterly declaration of income?
a. Individuals engaged in business
b. Corporations and individuals engaged in business
c. Corporations
d. All individuals and corporations
13.Mr. Peralta wishes to file his 2021 income tax return. To avoid penalty, he must file
his return on or before:
a. April 15, 2021
b. April 15, 2022
c. August 15, 2022
d. November 15, 2022
14.An individual taxpayer must file his income tax return for the third quarter of 2021 on
or before:
a. April 15, 2022
b. August 15, 2021
c. November 15, 2022
d. November 15, 2021
15.Talisay Corporation is filing its income tax return for the quarter ending February 28,
2021. The return must be filed on or before:
a. April 15, 2022
b. August 15, 2021
c. April 29, 2021
d. March 29, 2021
16.Which of these taxpayers is required to file an income tax return?
a. An employee covered by the substituted filing system
b. A taxpayer deriving purely passive income subject to final tax
c. Aliens classified as NRA-NETBs
d. A resident citizen who derives his entire income from sources outside the
Philippines
17.The taxable income of corporate taxpayers is the:
a. Net income from business
b. Net income from business less personal exemption
c. Taxable compensation income
d. Taxable compensation income plus net income from business
18.The taxable income of a pure compensation income earner is the:
a. Net income from business less personal exemption
b. Taxable compensation income plus net income from business
c. Taxable compensation income
d. Net income from business
19.The taxable income of a mixed income earner is the:
a. Net income from business less personal exemption
b. Net income from business
c. Taxable compensation income
d. Taxable compensation income plus net income from business
20.The taxable income of a pure professional income earner is the:
a. Net income from business
b. Taxable compensation income
c. Taxable compensation income plus net income from business
d. Net income from profession less personal exemption
21.Which of the following statements is incorrect with respect to the determination of the
taxable income of individual taxpayers with other income?
a. The other income of pure compensation earners is simply included in taxable
compensation income
b. The other income of a professional income earner is included as part of
non-operating income and is included in net income
c. The other income of a mixed income earner is also treated as part of
non-operating income and is included in net income
d. The other income is simply ignored in the computation of taxable income
22.Statement 1: Individuals with higher income are subject to higher tax rates.
Statement 2: Corporations with higher income are subject to higher tax rates.
Which is correct regarding the regular income tax?
a. Statement 1 only
b. Statement 2 only
c. Both statements 1 and 2
d. Neither statement 1 nor 2
23.Which is incorrect in the determination of the taxable income of individual taxpayers?
a. In the income tax return, there is no instance where the taxable compensation
income of taxpayers could become negative
b. A net operating loss is deductible against taxable compensation income
c. The taxable compensation income is added to the net income from business
d. Personal exemption is no longer deductible against compensation income
24.Statement 1: Corporations with the same net income may not have the same tax
due.
Statement 2: Individuals with the same net income may not have the same tax due.
Which statement is incorrect regarding the regular income tax?
a. Statement 1
b. Statement 2
c. Both statements 1 and 2
d. None
25.A purely engaged in business individual taxpayer using itemized deductions shall
use:
a. BIR Form 1701A
b. BIR Form 1701
c. BIR Form 1700
d. BIR Form 1702
26.BIR Form 1701 is not intended for:
a. Estate
b. Trust
c. Pure professional income earner under OSD
d. Mixed income earner
27.BIR Form 1700 is intended for:
a. Trust
b. Estate
c. Pure compensation income earner
d. Pure business or professional income earner
28.An employed professional practitioner who is opting to use the 8% optional
commuted tax for individual taxpayers shall use which form?
a. Form 1701
b. Form 1700
c. Form 1702-MX
d. Form 1701A
29.A corporation subject to different tax rates shall use:
a. Form 1702-RT
b. Form 1702-EX
c. Form 1702-MX
d. Form 1701A
30.A non-profit corporation with taxable income shall use:
a. Form 1702-RT
b. Form 1702-EX
c. Form 1702-MX
d. Form 1701A
31.A school which is subject to a preferential or special tax rate shall use:
a. Form 1702-RT
b. Form 1702-EX
c. Form 1702-MX
d. Form 1701A
32.A corporation that is subject only to a 25% or 20% income tax rate shall use:
a. Form 1702-RT
b. Form 1702-EX
c. Form 1702-MX
d. Form 1701A
33.A general professional partnership shall use which tax form?
a. Form 1702-RT
b. Form 1702-EX
c. Form 1702-MX
d. Form 1701A
34.A one-person corporation shall use which tax form?
a. Form 1702-RT
b. Form 1701
c. Form 1702-MX
d. Form 1701A
Multiple Choice - Problems 1
1. In 2024, Ms. Maya earned ₱450,000 compensation income but incurred ₱120,000
net loss in her business. What is her taxable income assuming she incurred personal
expenses of ₱100,000?
a. ₱450,000
b. ₱550,000
c. ₱330,000
d. ₱570,000
2. Mrs. Sipalay had a gross taxable compensation income of ₱400,000. She also
earned ₱2,000 from time deposits and ₱3,000 interest income from lending money to
a friend. Compute her taxable income.
a. ₱303,000
b. ₱302,000
c. ₱300,000
d. ₱403,000
3. Ms. Santander had a business net income of ₱300,000. She also earned ₱5,000
commission from selling cellular cards and ₱12,000 dividends from a domestic
corporation. Compute her taxable income.
a. ₱300,000
b. ₱312,000
c. ₱305,000
d. ₱317,000
4. Mr. Cabilao earned ₱800,000 in gross receipts and paid ₱300,000 in expenses in his
accounting practice. He also earned a ₱60,000 net gain from the sale of domestic
stocks directly to a buyer and disposed of a vacant lot at a ₱140,000 net gain. What
is his taxable income?
a. ₱400,000
b. ₱460,000
c. ₱500,000
5. d. ₱600,000
6. Mr. Jagna earned ₱200,000 gross compensation income (exclusive of ₱20,000
non-taxable compensation) and ₱500,000 gross business income before expenses
of ₱200,000. He also earned ₱10,000 book royalties and ₱8,000 interest income
from clients’ promissory notes. He incurred ₱170,000 in personal expenses. What is
his taxable compensation income?
a. ₱30,000
b. ₱180,000
c. ₱200,000
d. ₱220,000
7. What is Mr. Jagna’s net income from business?
a. ₱300,000
b. ₱308,000
c. ₱310,000
d. ₱518,000
8. What is Mr. Jagna’s taxable income?
a. ₱508,000
b. ₱450,000
c. ₱558,000
d. ₱468,000
9. Mr. Bangal earned ₱120,000 compensation income and ₱300,000 net income from
business. He also earned ₱8,000 prizes and ₱45,000 royalties. He incurred
₱150,000 in personal expenses. Compute the taxable income.
a. ₱473,000
b. ₱465,000
c. ₱428,000
d. ₱420,000
10.Mr. Jordan, with ₱750,000 personal expenses, had the following data in 2023:
Source Gross Income Interest Income Less: Deductions
Philippines ₱4,000,000 ₱40,000 ₱2,000,000
Abroad ₱6,000,000 ₱80,000 ₱3,600,000
Compute the taxable income if Mr. Jordan is a resident citizen.
a. ₱4,480,000
b. ₱4,520,000
c. ₱2,040,000
d. ₱2,000,000
10.In the preceding problem, compute the taxable income if Mr. Jordan is a non-resident
citizen.
a. ₱4,520,000
b. ₱4,480,000
c. ₱2,040,000
d. ₱2,000,000
Multiple Choice - Problems 2
1. Mr. Santos derived the following income in 2024:
Type of Income Amount
Business income ₱200,000
Compensation income ₱300,000
Interest income from 5/6 lending ₱100,000
Interest income from bank deposits ₱20,000
Royalty income ₱100,000
Capital gain on sale of personal car ₱20,000
Capital gain on sale of shares directly to a ₱40,000
buyer
Ordinary gain on sale of office furniture ₱10,000
Dividend income ₱50,000
Compute the total passive income subject to final tax.
a. ₱170,000
b. ₱1,370,000
c. ₱270,000
d. ₱1,470,000
2. Compute the total income subject to regular tax.
a. ₱1,730,000
b. ₱630,000
c. ₱1,470,000
d. ₱530,000
3. Compute the capital gain subject to capital gains tax.
a. ₱70,000
b. ₱40,000
c. ₱60,000
d. ₱0
4. Panay, Inc., a large corporation, had the following income in 2024:
Source Rent Income Dividends Royalties Business
Expenses
Philippines ₱10,000,000 ₱50,000 ₱80,000 ₱8,700,000
Abroad ₱12,000,000 – ₱200,000 ₱9,800,000
Compute the taxable income if Panay, Inc. was a domestic corporation.
a. ₱3,500,000
b. ₱3,700,000
c. ₱1,380,000
d. ₱1,300,000
5. Compute the income tax due in the preceding problem.
a. ₱1,149,000
b. ₱925,000
c. ₱1,110,000
d. ₱381,000
6. Compute the taxable income assuming Panay Corporation was a resident foreign
corporation.
a. ₱3,700,000
b. ₱3,500,000
c. ₱1,380,000
d. ₱1,300,000
7. Compute the income tax due in the preceding problem.
a. ₱325,000
b. ₱1,110,000
c. ₱1,149,000
d. ₱381,000
8. Compute the total tax if Panay, Inc. was a non-resident foreign corporation. Assume
that the tax sparing is not applicable to Cavite.
a. ₱3,015,000
b. ₱3,039,000
c. ₱3,000,000
d. ₱2,532,500