If the estate is under judicial administration, the executor or administrator files its income tax return and pays the taxes. If the administrator/executor sells a property of the estate while it's still under administration, the proceeds will be taxable if they exceed the appraised value of the property at the time the decedent died. If it's not under judicial administration, the heirs will include their distributive shares in the estate's net income in their respective returns.
The estate's gross income is the same as that of a living taxpayer. It's subject to deductions as well. The deductions mentioned in this article pertain to what the estate can deduct from transfer taxes. The deductions from the estate's income itself are the following:
1.) The same deductible expenses as an individual taxpayer
2.) The amount paid or credited to any legatee, heir or beneficiary
Regarding #2, cash advances given to the surviving spouse and heirs from the corpus of the estate aren't considered expenses and are consequently not deductible.
In the computation of taxes of the estate, the calendar year is to be used. Ergo, an estate's taxes are computed like that of an individual taxpayer. Also, an estate is entitled to optional standard deduction in the computation of its taxes.
An estate's taxable income is computed this way:
Gross Income - (Deductible Expenses + Income Distributed to Beneficiaries) = Net Income
Net Income - Exemptions = Taxable Income
Although Sec. 62 of the NIRC states that the estate can claim Php20,000 as personal exemption, there is an opinion that the exemption should be Php50,000 since Sec. 61-62 of the NIRC say that an estate is subject to the same rate as an individual taxpayer. This was noticed by my professor, Atty. Co Untian, who wrote to the BIR commissioner on this matter.
Regarding #2, cash advances given to the surviving spouse and heirs from the corpus of the estate aren't considered expenses and are consequently not deductible.
In the computation of taxes of the estate, the calendar year is to be used. Ergo, an estate's taxes are computed like that of an individual taxpayer. Also, an estate is entitled to optional standard deduction in the computation of its taxes.
An estate's taxable income is computed this way:
Gross Income - (Deductible Expenses + Income Distributed to Beneficiaries) = Net Income
Net Income - Exemptions = Taxable Income
Although Sec. 62 of the NIRC states that the estate can claim Php20,000 as personal exemption, there is an opinion that the exemption should be Php50,000 since Sec. 61-62 of the NIRC say that an estate is subject to the same rate as an individual taxpayer. This was noticed by my professor, Atty. Co Untian, who wrote to the BIR commissioner on this matter.
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