Introduction to Income Tax

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What is gross income as per the National Internal Revenue Code (NIRC)?

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Gross income means all income from whatever source, including compensation for services, gross income from trade or business, gains from property dealings, interests, rents, royalties, dividends, annuities, prizes, pensions, and partner’s distributive share from net income.

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What is taxable income according to the NIRC?

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Taxable income refers to the pertinent items of gross income, less any deductions authorized by law.

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Why is income considered the best measure of taxpayers’ ability to pay tax?

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Income is regarded as the best measure of taxpayers’ ability to pay tax because it is an excellent object of taxation in the allocation of government costs.

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What are the elements of gross income?

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1. It is a return on capital that increases net worth. 2. It is a realized benefit. 3. It is not exempted by law, contract, or treaty.

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What is the difference between gross income and taxable income?

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Gross income is a broader concept that includes all inflows of wealth, while taxable income is the portion of gross income that is subject to tax after deductions.

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What are capital items deemed with infinite value that are generally not taxable?

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1. Life 2. Health 3. Human Reputation

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What is the difference between recovery of lost capital and recovery of lost profits?

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Recovery of lost capital merely maintains net worth and is not taxable, while recovery of lost profits increases net worth and is taxable.

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What constitutes a realized benefit?

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A realized benefit is any form of advantage derived by the taxpayer that results in an increase in net worth.

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What are the types of transfers in taxation?

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1. Bilateral transfers (onerous transactions) - such as sales or barter. 2. Unilateral transfers (gratuitous transactions) - such as donations or succession.

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What are some exclusions from gross income as per the NIRC?

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1. Proceeds of life insurance policies. 2. Return of premiums from life insurance. 3. Value of property acquired by gift. 4. Compensation for injuries or sickness. 5. Retirement benefits under certain conditions.