How to compute and prepare the quarterly income tax returns? The following are the steps in the computation and preparation of your quarterly income tax returns. You can also check the sample computation we have provided below. STEP 1: Fill up completely the Part 1 of BIR form 1701Q with the applicable information, which include your Taxpayer your Taxpayer Identification Number (TIN), (TIN), registered name, registered address, line of business or occupation, method of deduction (itemized deduction or optional standard deduction), and other information that are applicable. Also fill in the year, quarter, check if amended or not, and the no. n o. of sheet/s attached which can be found on the top of the return.
qu arterly income tax. STEP 2: Fill up Part 2 of the form, which is the computation of the quarterly Refer to the form 1701Q to check the line items and their corresponding reference numbers. Step 2.1: Determine your [26] Sales/Revenues/Receipts/Fees . Add any [27] Amount You Received as a Partner from General Professional Partnership (except loans) , if any, to arrived at [28] Total . Step 2.2: Calculate your [30] Gross income from Operation by subtracting your [29] Cost of Sales/Services to your [28] Total in Step 2.1. Costs of services are the direct costs attributable to the rendering of your services, such as the depreciation of the building for business engage in building rental, internet cost for internet café business, salaries of janitors for business engaged in janitorial services, and others. Step 2.3: Compute your [32] Total Gross Income by adding [30] Gross Income to your [31] Other Income, if any. Step 2.4: Determine and compute your total allowable [33] Deductions for the quarter. You can choose one from the two (2) methods of deduction: (a) Itemized deduction or the (b) Optional Standard Deduction (OSD). Your chosen method of deduction will be your method of deduction for the entire taxable year. The following are the bases for computing the two methods:
g ross Option 1: Optional Standard Deduction (OSD) – A maximum of 40% of their gross sales or receipts shall be allowed as deduction in lieu of the itemized deduction. This type of deduction shall not be allowed for non-resident aliens engaged in trade o r business. Example, if you have P100,000 gross sales or receipts for the quarter, you can claim an allowable deduction (OSD) of P40,000 (P100,000 x 40%), if you choose OSD instead of Itemized deduction.
Option 2: Itemized Deduction – There shall be allowed as deduction from gross income all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are directly attributable to the development, management, operation and/or conduct of the trade, business or exercise of a profession including a reasonable allowance for salaries, travel, rental and entertainment expenses. Examples of itemized deductions are the following: Step 2.5: Calculate your [34] Taxable Income this Quarter by deducting your [33] Allowable Deduction computed in Step 2.4 to your [32] Total Gross Income. Step 2.6 : Compute your [36] Taxable Income to Date by adding your [35] “Taxable Income for the Previous Quarter/s” during the taxable year to your [34] Taxable Income this Quarter . Take the following guides:
1. For the 1st quarter, you don’t have [35] Taxable Income for the Previous Quarter/s since it is the beginning quarter of the taxable year. 2. For the 2nd quarter, your [35] Taxable Income for the Previous Quarter/s is equal to your [34] Taxable Income this Quarter in the 1st quarter. 3. For the 3nd quarter, your [35] Taxable Income for the Previous Quarter/s is equal to the “total of your taxable [34] Income this Quarter in the 1st and 2nd quarters” or the “total [36] Taxable income to Date of the 2nd quarter”. 4. There is no 1701Q filed and computed in the fourth quarter. Instead the annual income tax return (BIR Form 1701) is filed and computed. Step 2.7: Compute your [37] Tax Due using the Graduated Tax Table for Individuals. You can jump below Step 2.9 to see tax rates table and our sample computation. Step 2.8: Compute your [39] Tax Payable by deducting to your [37] Tax Due to your [38] total tax Credits/Payments for the Quarter , which include [38A/B] Prior Year’s Excess Credits, [38C/D] Tax Payment(s) for the Previous Quarter(s), [38E/F] Creditable Tax Withheld for the Previous Quarter(s), [38G/H] Creditable Tax Withheld Per BIR Form 2307 for the Quarter, and [38I/J] Tax Paid in Return Previously Filed (if you are filing an amended return). Step 2.9: Compute your [41] Total Amount Payable by adding any [40] Penalties (surcharge, interest and compromise), if there is any. Penalty is charged for late filing. To learn more about computing penalties, please check our article “How to compute BIR penalties”.
Sample computation of quarterly income tax due and payable
Example: Let us assume the following financial information of J. S antos, single and Filipino Citizen, for the 3rd Quarter of 2011. Santos has chosen to claim itemized deduction, instead of Optional Standard Deduction (OSD). He is also filing the return before the due date, which is also not an amended return. Gross sales: P300,000 Cost of Sales: P 180,000 Expenses (rent, depreciation, salaries, taxes and licenses): P 60,000 Other income: P 20,000 Total taxable income for the 1st and 2nd Quarters: P40,000 Income tax paid for the 1st and 2nd Quarters: P1,000 Creditable tax withheld for the previous quarters: P3,000 Creditable tax withheld per BIR form 2307 for this quarter: P2,000 What is your income tax due and payable for the 3rd quarter of 2011? Answers and computation:
Gross Sales [26] Add: Share from Gen. Prof. Partnership [27] Total [28] Less: Cost of Sales [29] Gross Income from Operation [30] Add: Other Income [31]
P
300,000 0 300,000 180,000 120,000 20,000
Total Gross Income [32] Less: Deductions [33] Taxable Income This Quarter [34] Add: Taxable Income for the Previous Qtrs [35] Taxable Income to Date [36] Tax Due [37] * Less: Tax Credits/Payments: [38] Tax Paid for the Previous Quarters Creditable tax withheld for the previous quarters Creditable tax withheld per BIR form 2307 for this qtr Tax Payable [39] Less Penalties [40] Total Amount Payable [41]
140,000 60,000 80,000 40,000 120,000 18,500 1,000 3,000 2,000 12,500 0 P 12,500
* Computation of tax due:
Since P120,000 is under the “over P70,000 but not over P140,000, your tax due is equal to P8,500 + 20% of the Excess of 70,000. Tax Due = P8,500 + 20% of the Excess over 70,000. Tax Due = 8,500 + [20% (120,000 - 70,000)] Tax Due = 8,500 + (20% x 50,000) Tax Due = 8,500 + 10,000 Tax Due = P18,500 Notes: 1. The personal and additional exemptions of the taxpayer are only claimed on the computation of annual income tax return.. 2. Compensation income need not be reported in the Quarterly Income Tax Return. The same shall be reported in the Annual Income Tax Return only. Step 2.10. If you are filing consolidated income tax return with your spouse, aggregate your income tax payable. Step 2.11 Put your signature over your printed name. Also fill the Title/Position of Signatory.
