Instructions: Using the following facts:
1. Draft the appropriate income tax return based on the available facts.
2. Attach your workings as a pdf file to the income tax return which should show your supporting
computations of the amounts disclosed in the ITR, reconciliation of accounting net income to tax
net income, etc.
3. Draft a transmittal letter containing the following minimum information:
a. Executive Summary of the income tax liability and positions of the taxpayer
b. Explanation on the positions taken in the ITR
c. Analysis if taxpayer elected 8% optional tax rate
d. Analysis if taxpayer elected OSD
FACTS:
Juan dela Cruz engaged your services to draft his income tax return for the calendar year ended
December 31, 2024. You culled the following information from the accounting records of Juan:
Compensation Income
Basic Salary 1,500,000
Regular Allowances 300,000
13th month pay and other benefits 200,000
SSS, GSIS, Philhealth, HDMF and Other Contributions (Employee Share) 24,000
Business Income
Debit Credit
Sales Revenue 3,000,000
Sales Returns & Allowances 50,000
Service Revenue 1,000,000
Interest Income from bank deposits (net of FWT) 150,000
Gain on sale of capital assets 150,000
Loss on sale of capital assets 50,000
Cost of Goods Sold 1,200,000
Cost of Services 600,000
Bad Debts 40,000
Charitable Contributions 40,000
Depreciation 120,000
Entertainment, Amusement and Recreation 80,000
Fringe Benefits 60,000
Interest 80,000
Losses 40,000
Pension Trust 200,000
Rental 160,000
Research and Development 80,000
Salaries, Wages and Allowances 400,000
SSS, GSIS, Philhealth, HDMF and Other Contributions 80,000

Taxes and Licenses 40,000
Transportation and Travel 80,000
Totals 3,400,000 4,300,000
Tax Credits & Losses
Creditable withholding taxes withheld by customers (BIR Form 2307) 50,000
Income Tax Withheld by employer (BIR Form. 2316) 400,000
Income tax payments for 1st three quarters 150,000
Net Operating Loss Carryover from Previous Year 100,000
Net Capital Loss Carryover from Previous Year 30,000
Taxable income from Previous Year 20,000
Excess Tax Credits from Previous Year 45,000
During your fieldwork at Mr. Juan’s place of business, you were also able to ascertain the following facts:
1. The bad debts expense was computed as 1% of total sales or revenues based on historical data.
The allowance for bad debts account increased by 20,000 during the year. Juan wrote off
accounts receivable from customers after satisfying all remedies available but no avail.
2. The charitable contributions were donations made to the government for non-priority projects.
3. The interest expense includes imputed interest on non-interest bearing loans amounting to
P10,000.
4. Losses include a loss from write-down of inventory amounting to P20,000.
5. The pension trust is the current service cost for the year 2024. Juan made a total contribution to
the pension fund of P300,000 during the year.
6. Taxes and licenses include penalties amounting to P5,000.