In 2022, Marian Santiago, a CPA, decides to return to her hometown to start her own practice. For taxable year 2022, Santiago expects that after deducting cost of services of P900,000, her gross income from practice will be P2,300,000. She also expects to incur operating expenses in the total amount of P600,000 constituting mostly of her office space rent, utilities, and miscellaneous expenses. What is the best strategy to reduce the income tax liability of Santiago? Commit tax evasion. Form a one person corporation. Avail of the 8% income tax rate. Use graduated rates.

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.