Danzelle Alado Pradanos Bsa-2B Introduction To Income Taxation

DANZELLE ALADO PRADANOS BSA-2B
INTRODUCTION TO INCOME TAXATION
1. CONCEPT OF INCOME- Income is one of the most basic measures of economic activity.
For individuals and companies, it measures the net gain of their revenues as a result of
working or doing business. In public policy, income represents the basis for most forms of
taxation.
2. Element of Gross Income- For individuals, gross income is all the money you earn before
taxes and other deductions are subtracted. Your earned income can come in many forms:
salary, bonuses, tips, hourly wages, rental income, dividends from stocks and bonds, and
savings account interest. In the less traditional but growing “gig” economy, people can earn
income from multiple part-time, temporary, or freelance positions. All the monies earned
from these jobs would count toward your gross income. To avoid confusion, it’s worth
knowing that there’s a different gross income definition for businesses. For a business,
gross income, also known as gross profit, is the total revenue earned from sales, minus the
cost of those goods sold.1 Gross profit is a line item in a profit and loss statement.
3. Type of Income Taxation

A taxpayer may be an individual or business entity that is obligated to pay taxes to a
federal, state, or local government. Taxes from both individuals and businesses are a
primary source of revenue for governments. In the United States, individual taxpayers are
usually required to file and pay both federal and state tax returns annually. Businesses must
also file annual returns but usually plan for and pay regular estimated tax payments
throughout the year.
Particulars of the taxpayers by type are as follows:

1. Corporate taxpayers are comprised of taxable, exempt and non-resident foreign
corporations. The taxes are paid on a company's taxable income, which includes revenue
minus cost of goods sold (COGS), general and administrative (G&A) expenses, selling and
marketing, research and development, depreciation, and other operating costs.
2. Individual taxpayers are comprised of compensation income earners, professionals,

single proprietorship and OFW/non-resident citizen.
4. Income Taxation Scheme- An item of gross income is taxable in any of the three tax
schemes as shown in the figure below: these are final taxation, capital gains taxation and
regular income taxation. The tax schemes are mutually exclusive. It means that if an
income is subjected to one scheme, it will not be taxed by other schemes. Similarly,
exempted income in one scheme is not taxable by other schemes.
1. Final Income Taxation-characterized by final taxes wherein full taxes are withheld by the
income payer at source. The recipient income taxpayer receives the net income net of
taxes. The payer is the one required by law to remit the tax to the government.
Consequently, the recipient income taxpayer does not need to file ITR because the withheld
tax constitutes the full tax due and therefore deemed final payments. Final Income tax is
applicable only on certain passive income listed by law. Not all passive income is subjected
to final income tax. This system of taxation is called final withholding tax system.
2. Capital Gain Taxation-used for the computing the gain on sale,exchange and other
disposition of capital assets. These assets are not used in the ordinary course of business or
profession. Ordinary assets such as inventory, supplies or property, plant and equipment
are not Capital Asset. Capital Gains taxation applies only to two types of capital assets:
domestic stocks and real property.
3. Regular Income Taxation- it is the general rule in income taxation. Items of gross income
are accumulated over an accounting period and reported to the government through an
income tax return. It makes use of the self- assessment method.
References
https://www.investopedia.com/terms/i/income.asp#:~:text=Income%20is%20one%20of
%20the,for%20most%20forms%20of%20taxation.
https://www.americanexpress.com/en-us/credit-cards/credit-intel/gross-income/
#:~:text=For%20individuals%2C%20gross%20income%20is,bonds%2C%20and%20savings
%20account%20interest.
https://www.investopedia.com/terms/t/taxpayer.asp
https://www.statista.com/statistics/1018465/registered-taxpayers-philippines-by-type/
#:~:text=1.,OFW%2Fnon%2Dresident%20citizen.
https://www.studocu.com/ph/document/cagayan-state-university/accounting/topic-4-tax-
schemes-periods-methods-and-reporting/9416077

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DANZELLE ALADO PRADANOS BSA-2B

INTRODUCTION TO INCOME TAXATION

3. Type of Income Taxation

Particulars of the taxpayers by type are as follows:

2. Individual taxpayers are comprised of compensation income earners, professionals,

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