Deductible Business Expenses – Personal Services
employee is paid for a limited period after his death to his
Requisites:
-must be reasonable
-payments must be for service
-any amount not paid as purchase price of services
>>an ostensible salary paid by a corporation may be a
distribution of dividend on stock
>>an ostensible salary may be in part payment for
property
-form or method of fixing compensation
>>if contingent compensation is paid pursuant to a free
bargain between the employer and individual made before
the services are rendered, not influenced by any
consideration on the part of the employer other than that
of securing a fair and advantageous terms on the services
of the individual, it should be allowed as a deduction even
though in the actual working out of the contract, it may
prove to be greater than the amount which would
ordinarily be paid
-reasonableness of compensation
>>reasonable and true compensation is only such amount
as would ordinarily be paid for like services by like
enterprises in like circumstances. The circumstances to be
taken into consideration are those existing at the date
when the contract for services was made, not those
existing at the date when the contract is questioned
-treatment of excessive compensation
>>the income tax liability of the recipient in respect of an
amount ostensibly paid to him as compensation, but not
allowed to be deducted as such by the payer, will depend
upon the circumstances of each case. In case of excessive
payments by corporations, if such payments corresponds
or bear a close relationship to stockholdings, and are
found to be distribution of earnings or profits, the
excessive payments will be treated as dividend
>>for income tax purposes, the employer cannot legally
claim such bonuses as deductible expenses unless they are
shown to be reasonable
Bonuses to Employees
-allowable deduction from gross income whern:
>>made in good faith
>>given for personal services actually rendered
>>do not exceed a reasonable compensation for the
services rendered when added to the stipulated salaries,
measured by the amount and quality of services
performed in relation to the business of the particular
taxpayer
Pensions and Compensation for Injuries
-are allowable deductions but limited to the amount not
compensated for by insurance or otherwise:
>>when the amount of the salary of an officer or
widow or heirs, in recognition of the services rendered by
the individual, such payments may be deducted
>>salaries paid by employers to employees who are absent
in military, naval or other service of the government, but
who intend to return at the conclusion of such service, are
allowable deductions
Travel Expenses
-include transportation expenses + meal allowances +
lodging of an employee (here and abroad)
>>if the trip is undertaken for purposes other than
business, the transportation expense are personal
expenses and the meals and lodgings are living expenses
and therefore not deductible
>>if the trip is solely on business, the reasonable and
necessary travel expenses, including transportation
expenses, meals and lodging become business instead of
personal expenses
Requisites for Deductibility of Travel Expenses
-must be reasonable and necessary
-must be incurred or paid “while away from home”
-must be paid or incurred in the conduct of trade or
business
>>in reference to the term “away from home”, the area
where the business operates is his “tax home” and
traveling expenses on this area is not deductible (manila-
manila) but only those incurred outside of the area being
operated (manila-cebu)
Proof of Deductibility of Travel Expenses
-the following should be attached in his return a statement
showing:
>>the nature of business in which he/it is engaged
>>the number of days the employee was “away from
home” during the taxable year on account of business
>>the total amount of travel expenses incident to business
during the taxable year
>>the total amount of other expenses incident to travel as
a deduction