Question & AnswerQ&A (BIR REVENUE REGULATION NO. 2-93)
The scope covers the income taxation of resident citizens and aliens who are self-employed and/or professionals engaged in the practice of their profession, non-resident aliens, estates and trusts engaged in trade or business, general professional partnerships, and their individual partners under the simplified net income taxation scheme (SNITS).
Professionals include persons who derive income from the practice of their profession such as lawyers, doctors, dentists, CPAs, and others registered with the Professional Regulations Commission (PRC), as well as persons who pursue an art and make a living therefrom, like artists and athletes.
Excluded incomes include compensation income, foreign source income of non-resident citizens, certain passive incomes like interest and royalties, capital gains from sales of shares of stock and real property, and dividends received from domestic corporations.
The rates are: Not over P10,000 - 3%; Over P10,000 up to P30,000 - P300 plus 9% of the excess over P10,000; Over P30,000 up to P120,000 - P2,100 plus 15% of the excess over P30,000; Over P120,000 up to P350,000 - P15,600 plus 20% of the excess over P120,000; Over P350,000 - P61,600 plus 30% of the excess over P350,000.
Allowed direct costs include raw materials, supplies, direct labor, salaries of employees directly performing services, telecommunications, electricity, fuel, light and water expenses, business rental, depreciation, contributions to government/accredited relief organizations for calamity rehabilitation, and interest on loans from accredited financial institutions related to the trade or profession.
It allows taxpayers whose cost of goods sold and direct costs are difficult to determine to deduct a maximum of 40% of their gross receipts as business/professional expenses instead of itemized deductions.
No, once a taxpayer elects to claim itemized deductions under SNITS in their income tax return, they cannot revert to or claim the 40% maximum deduction if expenses are not substantiated during audit. This election is irrevocable for the taxable year.
Personal and additional exemptions are allowed on top of direct costs: P6,000 for estates and trusts; P9,000 for single individuals or legally separated with no dependents; P12,000 for head of family; P18,000 for married individuals; with an additional exemption of P5,000 for each dependent up to a maximum of four dependents.
Personal and additional exemptions are first deducted from compensation income. If any exemption amount remains, the excess may then be deducted from business or professional income.
Yes, GPPs and their partners are covered. Only direct costs are deductible from partnership income. Expenses paid by partners in their individual capacities which are not reimbursed by the partnership and are not direct costs are not deductible from their gross income.