Income and Business Taxation Flashcards

A set of vocabulary flashcards defining key tax terms, classifications, deductions, and concepts from the Income and Business Taxation lecture.

Taxation

The process by which a government, through its lawmaking body, imposes charges on its inhabitants to raise money for public use.

Primary Purpose of Taxation

To raise revenue that will be used in defraying government expenses.

Taxes

Mandatory contributions imposed upon persons and property for the support of the government.

Income Tax

A tax on a person’s income derived from employment, business, trade, practice of profession, or from property, after excluding the deductions allowed under the law.

Business Tax

A tax on the production, sale, or consumption of goods and services, leasing property, or other business activities.

Income

Includes all inflows of wealth to the taxpayer other than those that represent a mere return in capital.

Gross Income

Refers to all income derived from whatever source, which is the taxpayer’s income for taxation purposes.

Gross Compensation Income

Income that is physically derived from employment, such as salaries and wages.

Taxable Income

Gross income minus the deductions allowed by the law, representing the amount on which tax is computed.

Business Income

Income derived from trade, business, or practice of profession (or simply, income from self-employment).

Optional Standard Deduction (OSD)

A deduction computed as forty percent ($40\%$) of net sales, without deducting cost of sales, allowed to individual taxpayers deriving business income.

Optional 8% Tax

An optional tax rate on gross sales/receipts and other non-operating income in excess of $P250,000$ for self-employed individuals whose gross sales or receipts do not exceed the $P3,000,000.00$ VAT threshold, in lieu of graduated income tax rates and percentage tax.

Value-Added Tax (VAT)

A consumption tax, sales tax, and indirect tax imposed on any person who, in the ordinary course of business, sells, barters, exchanges, leases goods or properties, renders services, or imports goods.

Tax Evasion

Occurs when a taxpayer avoids paying his/her taxes using illegal means, such as non-declaration or under-declaration.

Tax Avoidance

Occurs when a taxpayer minimizes his/her exposure to taxes through legal means.