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DEDUCTIONS FROM GROSS INCOME b. Between corporation and individual 2.

Necessary Expenses:
holding more than 50% in value of the i. Appropriate, helpful and reasonable
Deductions from outstanding stock expenses incurred to increase normal
Gross Income c. Between two corporations holding more income or maximize profits
than 50% in value of the outstanding ii. Expenses that the taxpayer subjectively
stock of either one believes that may lead to economic
d. Between grantor & fiduciary, between benefits
fiduciaries with the same grantor,
Itemized Deduction between fiduciary and beneficiary Requisites for Deductibility:
1. Business Optional Standart Salaries, Wages and Other Forms of
expenses Dedcution Related Taxpayers Compensation:
2. Interest 1. Individual 1. Between members of the family: The 1. Reasonable
Taxpayers family of an individual shall include only 2. Personal services actually rendered
3. Taxes his brother and sisters (whether by whole 3. Withholding tax imposed has been paid
2. Corporation
4. Losses or half-blood), spouse, ancestors and
5. Bad Debts lineal descendants Travel Expenses, Local and Abroad:
--> Election is 2. For stockholder and corporations and 1. Reasonable
6. Depreciation irrevocable during
and/or Depletion between corporations, losses applies 2. Incurred or paid while away from home
taxable year made in except in case of distributions in 3. Incurred or paid in the pursuit of trade,
7. Charitable the first quarter liquidation. business or profession
contributions return
8. Research & A. Business Expenses, in general Rent Expense:
Development cost Requisites: 1. Reasonable
9. Pension Trust a) Ordinary and necessary 2. For purposes of trade, business or
b) Paid or incurred during the taxable year profession
c) Paid or incurred in carrying out a trade, 3. Taxpayer has no equity other than that of a
business or exercise of profession lessee, user or possessor
d) Supported by receipts, records and other
I. Items Not Deductible pertinent papers Advertising Expense:
General Rule: 1. Reasonable
1. Personal, living or family expenses 1. Ordinary Expenses: 2. For purposes of trade, business or
2. Capital expenditures i. Revenue expenditure profession
3. Expenditures after acquisition of assets ii. Directly attributable to the development, 3. Amount incurred or claimed must not be a
when any of the following conditions are met: management, operation and/or conduct of capital outlay to create goodwill for the
a. Increase in useful life the trade, business, or exercise of profession product or for taxpayer’s business
b. Increase in capacity iii. Reasonable, essential, inherent and
c. Increase in efficiency common to the operation of a trade,  Reasonable advertising, expense shall
4. Losses from sales or exchanges of property business or occupation. not be higher than 10% of the total
(Related Taxpayer) marketing expenses for one year.
a. Between members of the family
B. Taxes: Non-Deductible Interest Expense: Measurement of Amount of Loss
1. Paid or incurred within the taxable year 1. Interest on preferred stocks Amount Deductible
2. Connected with trade, business or 2. Interest agreed on orally Total Loss Equal to the BV of the
profession 3. Interest on indebtedness that has prescribed lost asset
 Means tax proper only Partial Loss Equal to the BV of the
 Includes national and local taxes Recognition of Interest Expense based on asset at time of loss
 No deduction shall be claimed for any Accounting Method Used: or the replacement
surcharge, penalty or delinquent taxes cost, whichever is
Non-Deductible Taxes: Whether total or partial loss, the amount of
1. Philippine income tax Method
loss shall be reduced by:
2. Estate and donor’s tax 1. Scrap or salvage value of damaged
3. Value added tax property
4. Stock transaction tax 2. Recoverable amount of insurance
5. Special assessment Accrual
Cash Basis
6. Foreign income tax claimed as tax credit Basis Kinds of Deductible Losses:
1. Business losses including losses from
C. Interest Expense theft, robbery or embezzlement
When When 2. Casualty losses arising from storm, fire or
Rules in Deductibility: indebtedness incurred/or shipwreck, other form of casualties
1. Indebtedness must be in writing paid accrued 3. Net operating loss carry over (NOLCO)
2. Indebtedness must be that of the taxpayer 4. Other types of losses
3. Indebtedness must be connected with trade,
business, or profession D. Losses Other Types of Losses: Wagering Loss
4. Interest must have been paid or accrued 1. Actually sustained during taxable year  Refers to earnings or losses resulting from
during taxable year 2. Not compensated for by insurance or gambling, whether legal or illegal
other forms of indemnity Basic Procedures:
Rules for Non-Deductibility Interest Expense: 3. Property connected with trade, business, 1. Only wagering gain, gain included in gross
1. Between related taxpayers or profession taxable income
2. Incurred to finance petroleum operation 4. Arising from fires, storms, shipwreck or 2. Only wagering loss, the loss is a non-
3. In case of interest incurred to acquire other casualties, or from robbery, theft or deductible items
property used in trade, business or embezzlement. 3. Both wagering gain and loss, wagering
profession, the same is treated as capital 5. Not claimed as deduction for estate tax loss deducted from wagering gain:
expenditure purposes in the estate tax return a. Net wagering gain included in
6. Declaration of loss submitted within 45 gross taxable income
Deductible in Full Amount: days from date of discovery. b. Net wagering loss is non-
1. Interest for tax delinquency deductible
2. Interest payment on scrip dividends
3. Interest payment on bonds
4. Interest payment on deposits (for banks)
Other Types of Losses income from which a bad debt deduction  Constituting a bribe, kickback or other similar
Loss due to voluntary Deductible has been made in previous years. payments
removal of building
incident to renewal F. Depreciation Ceiling on Deductible Amount:
Real estate bought Not deductible
upon which is located expense on account Requisites for Deductibility: KIND OF BUSINESS LIMIT
a building of cost of removal, the 1. Reasonable Sale of goods or ½% or 0.5% of net
value of the real 2. Property is used in trade, business, or properties sales (gross sales
estate, exclusive of profession less sales returns and
the old 3. Property must have a limited useful life allowances, and
improvements, being 4. Allowance must be charged off during the sales discounts)
presumably equal to year Sale of services, 1% of net revenue
the purchase of the exercise of (gross revenue less
land and building plus Methods of Depreciation: professions, use or discounts)
the cost of removal 1. Straight line method lease of property
Shrinkage in value of Not deductible 2. Declining balance method
stock 3. Sum-of-the-years-digit method Deductible Amount:
Worthless securities Deductible 4. Other methods which may be prescribed  Limit or actual amount, whichever is
Entertainment, Amusement and
E. Bad Debts Representation
Requisites for Deductibility: G. Charitable and Other Contributions
Requisites for Deductibility: 1. Paid or incurred during taxable year
1. There must be an existing debt, which is 2. Directly related to or in furtherance of the Requisites for Deductibility:
valid and legally demandable conduct of trade, business or exercise of 1. Actual contribution is made
2. Connected with trade, business or profession 2. Taxpayer must be engaged in business,
profession 3. Not contrary to law, morals, public policy or trade or exercise of profession
3. Must not be sustained or incurred between public order 3. Evidenced by receipts or records
related parties 4. Substantiated by proof in the name of 4. Entity receiving donation is among those
4. Actually charged off within the taxable year taxpayer specified
5. Actually ascertained to be worthless as of 5. Appropriate w/tax, if any, have been 5. Net income of the institution must not inure
end of taxable year withheld and paid to BIR to the --- of any individual or private
6. Not paid, directly or indirectly, to an official stockholder
Non-Deductible Bad Debts: or employee
1. Not related to trade, business or profession a. National government Valuation:
2. Arising from related party transaction b. Local government units Kind of Donation Valuation
3. Sustained from unpaid wages, salaries, c. GOCCs 1. Cash Amount paid
rents and similar items, unless an income d. Foreign government 2. Non-cash Acquisition cost of
from such items has been included and e. Private property
reported as part of the gross taxable individual/corporation/GPP/entities
Classification of Charitable Contribution: treaties or Accredited Non-Profit Organizations
1. Deductible in Full commitments 1. Cultural Center of the Philippines
2. Subject to Limitation  Pursuance of 2. Ramon Magsaysay Award Foundation
special laws 3. Boy Scout of the Philippines
Amount of Limitation: Persons Involved  Philippine 4. Girl Scout of the Philippines
Kinds of Donor Limitation government and 5. Integrated Bar of the Philippines
1. Individual 10% taxable income foreign 6. Roxas Educational and Welfare
before contribution  Institutions or Committee
2. Corporation 5% of taxable income international 7. National Social Action Council
before contribution organization 8. International Rice Research Institute
Deductible Amount: Limitation or actual, 3. Donations  Accredited non- 9. Development Academy of the Philippines
whichever is lower made to: government 10. UP and Other State, Colleges, and
organizations Universities
Taxable Income for Purposes of Charitable  Non-profit domestic 11. School of Deaf and Blind
Contributions: corporations 12. Philippine Amateur Athletic Association
 Gross taxable income from trade 13. Artesian Well Find
Conditions for Deductibility
business or profession minus allowable 14. National Museum, Library and Archives
Organization Exclusively for scientific
deductions 15. Philippine National Red Cross
research, educational,
16. National Science Development Board
youth and sports
Charitable Contributions (Deductible in FULL) 17. Southeast Asian Fisheries Development
development, health,
social welfare, cultural
1. Donations 
Government of the 18. National Commission on Cultures
and charitable purposes
made to: Philippines/agencies 19. Heart Center and Lung Center of the
Utilization of Utilized directly for the
 Political subdivisions Philippines
Funds active conduct for which
 GOCCS 20. Humanitarian Science Foundation
it is organized not later
21. Construction of Public School Buildings
Purpose of Exclusively to finance or than the 15th day of the
Donation used in undertaking 3rd month after the close
priority activities of taxable year
Charitable Contributions (Subject to Limitation)
Type of Priority Health, Education, Ratio of Ratio of administrative
1. Donations  Government of the
Activities Youth and sports Administrative expenses shall not
made to Philippines/agencies
development, Science Expenses exceed 30% of the total
and culture, Human expense  Political subdivisions
settlement, Economic Transfer of In cases of dissolution, Purpose of Exclusively for public
Development Assets will be transferred to Donation purpose
2. Donations  Foreign institutions another non-profit 2. Donations Accredited domestic
made to:  International domestic corporation made to: corporation, association
organization organized for a similar or institutions
Purpose of  In compliance with purpose, or to the state Purpose of Exclusively for religious,
Donation for public purpose Donation charitable, scientific,
youth and sports
development, cultural,
educational or
rehabilitation of
3. Donations Social welfare
made to: organization
4. Donations Non-government
made to: organizations

Notice of Donation:

Persons Involved The Donor

Cut-off amount: Required for value of
donation P1M or
Due date: Within 30 days after
receipt of certificate of
Place of filling: RDO where principal
place of business of
donor located

Certificate of Donation:
Person involved: Accredited NGOs,
non-stock, non-profit
association or
When: Every donation or gift
they receive