Deductions - income tax

Annotations:

• General rule 1. ordinary and necessary 2. paid/incurred during the taxable yr 3. directly attributable to the dvpt, mgt, optn, and/or conduct of trade/bus/profession 4. supported by sufficient evidence 5. not against law or public policy

1. Compensations payments
2. Travelling expenses
3. Rentals and/or other payments
4. Entertainment, amusement, and recreation expenses
5. Kickbacks, bribes, and similar payments
6. Special deductions on discounts to senior citizens and PWD, and on compensation to senior citizens
7. Non deductible expenses

   Annotations:

   • 1. perosnal, living and family expenses 2. paid out for new bldgs or for permanent improvements 3. amt expended in restoring property or in making good exhaustion thereof for which an allowance is/has been made 4. premiums paid on any life insurance where directly/indirectly taxpayer is the beneficiary

1. 33% of interest income subjected to FTx
2. itnerest on unpaid business-related taxes too are deductible
3. Non deductible interest

   Annotations:

   • 1. interest on load paid in advance - consider cash/accrual basis 2. interest on loans between related taxpayers 3. if indebtedness is incurred to finance petroleum operations

1. exceptions

   Annotations:

   • 1, philippine income tax 2. foreign income tax if claimed by taxpayer as a tax credit 3. estate and donor taxes 4. taxes assessed against local benefits of a kind tending to increase the value of propery assessed
2. Limitation - situs - within/without
3. tax credit - NET INCOME

Annotations:

• requisities for deductibility 1. actually sustained during taxable yr 2. not ocmpensated by insurance/similar 3. incurred in trade/profession/business 4. from fire, storms, shipwreck, othercasualties, robbery, theft, embezzlement 5. not have been claimed as deduction for estate tax  purposes in etr 6. filed within 45 days after occurence in case of casualty loss

1. partial / total destruction in casualty loss
2. Insurance and other reimbursements -Resonable prospect that it will be received
3. NOLCO
   1. 1.) individuals ETB / profession 2.) domestic, res. foreign corp subject to ncit or pref rate 3.)estates and trust
4. Wagering transactions -only to the etent of gains
5. Voluntary removal of buildings
   1. 1.) incident to removals/replacements 2.) w/ a view of erecting another bldg
6. Loss of USEFUL value - only when permanently abandoned

Annotations:

• requisites 1. valid and subsisting 2. ascertained o be worthless 3. during the taxable year 4. trade/profession/business 5. not between related taxpayers

1. tax benefit rule

Annotations:

• requisities for deductibility 1. reasonable 2. used in trade/business 3. during taxable year 4. statement on allowance attached to the return

1. Vehicles
   1. substantiate purchase
      1. id number
      2. chassis number
      3. total price
      4. connection to mgt/op'n
   2. 1 vehicle for land transport only not exceeding 2.4 M
   3. No depn for yachts, helicop,planes, aircrafts, land vehicles exceeding 2.4

      Annotations:

      • unless taxpayer's main line of bus. is transport operations / lease of transport equipment and vehicle purchased are for operations
   4. NOPE forMaintenance expense for NON depcble vehicles
   5. Nope for input taxes on maintenance expense for NON depcble v.
2. methods under nirc
   1. straight line
   2. declining
   3. syd
   4. sec. of finance - CIR
3. Mining
   1. expected life is 10 yrs or less
      1. normal rate over actual life
   2. expected life more than 10 yrs
      1. depreciate any no. of yrs between 5-life
4. Petroleum operations
   1. directly related
      1. straight line
      2. declining bal.
      3. shorter of 10 yrs or useful life
   2. not directly rel.
      1. straight line only
      2. 5 yrs always
5. NRA-ETB pr res for corp - must be located in the phils
6. OBSOLESCENCE -may be deducted in addition to depn for exhaustion, wear and tear

Annotations:

• general conditions and rules 1. cost depletion method 2. oil and gas wells and mines 3. basis of cost depletion is capital invested in the mine w/c is the acc. exploration and devlpt expenses 4. allowance = cap invested, then no more further allowance shall be granted 5. res foreign corp, allow. for depletion shall be authorized only in respect to OIL, GAS WELLS, MINES locadted IN THE PHILIPPINES 6. after prod'n in commercial quantities commenced, intangible exploration and devlpt drilling costs treated as follows

1. intangible exploration and development drilling costs
   1. incurred for non producing wells and/or mines
      1. deductible in the yr incurred
   2. for producing wells and/or mines

      Annotations:

      • at the option of tax payer
      1. option 1 deductible in FULL in the yr paid OR incurred
      2. option 2 CAPITALIZE and amortise
2. NRA or Foreign corp - must be located in the phils

1. fully deductible
2. subject to limitation
   1. corporation = 5 percent
   2. individual = 10 percent
3. donation of non cash = acquisition cost

1. Actual Contribution + amortisation of past service cost
2. pension liability = normal cost
3. PENSION SERVICE COST =actual contributions less:normal cost
4. 10 YRS amortisation always

1. Not chargeable to capital acct
   1. OUTRIGHT EXPENSE
2. chargeable to capital acct BUT NOT subj to dep'n/depltn
   1. option 1 OUTRIGHT EXPENSE
   2. option 2 AMORTIZE 60 mos. / 5 yrs
3. Chargeable to property SUBJECT to depn/depln
   1. CAPITALIZE