+ All Categories
Home > Documents > Allowableasdasdasdasdasdadeductions Personal Exemptions

Allowableasdasdasdasdasdadeductions Personal Exemptions

Date post: 07-Jul-2018
Category:
Upload: guitelen-siiten
View: 215 times
Download: 0 times
Share this document with a friend

of 163

Transcript
  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    1/163

    Distinguish a “Exclusion from

    Gross Income” from “Deductions

    from Gross Income”. Give an

    example of each.

     2001 BAR Examination

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    2/163

    Deductions fromGross Income

    Section 34

    Exclusions fromGross IncomeSection 32(B)

    Something paid or

    incurred in doingbusiness or trade

    Should not form part

    of gross income

    because excluded bylaw, by the

    constitution or does

    not fall within the

    definition of income.Pertains to thecomputation of

    ordinary taxable

    income.

    Pertains to the

    determination of

    Gross Income.

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    3/163

    Section 34 of the NIRC

    SHA !"# APP$ #"

    G%"SS &"'P(!SA#I"! I!&"'(

    EXCEPT   Section 34 (M).

    &A! )( D(D*(D from

    Gross &ompensation Income

    Section 34 of the NIRC

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    4/163

    Section 35 of the NIRC

    S*)S#I#*#(S +"% #H( DISA"A!&( "++A'I$, I-I!G and P(%S"!A (P(!S(S

    KindsBASIC PERSONAL EXEMPION

    ADDIIONAL PERSONAL EXEMPIONatt. c

    leo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    5/163

    Deductions fromGross Income

    Section 34

    Allo!"nce forPerson"l Exem#tions

    Section 35

     Actual business

    expenses or

    expenses incurredin the exercise of

    profession

     Arbitrary amounts

    because it may not

    be enough to co/erpersonal li/ing

    expenses.

    #o reco/er thecost of doing

    business.

    #o co/er the family,li/ing and personal

    expenses.

    As to

    AMO$N

    As toP$RPOSE

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    6/163

    Deductions fromGross Income

    Section 34

    Allo!"nce forPerson"l Exem#tions

    Section 35

    )usiness

    (xpenses

    +amily, li/ing and

    personal expenses.

    &orporate

    #axpayers except

    NRFC, it can alsobe claimed by

    Indi/idual

    #axpayers except

    NRA-NETB.

    Indi/idual

    #axpayers only

    except NRA- 

    NETB.

    As to

    NA$RE

    As toCLAIMAN

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    7/163

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    8/163

    Section 34 of the NIRC

    S%A&& ') A**&+ #"G%"SS &"'P(!SA#I"! I!&"'(

    EXCEPT   Section 34 (M).

    &A! )( D(D*(D from

    Gross &ompensation Income

    Section 34 of the NIRC

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    9/163

    Section 34 of the NIRC

    #hese are amounts allo,ed - la, to

    reduce the gross income to taxable income.

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    10/163

    Section 34 of the NIRC

    BASIC PRINCIPLES

     %e t"x#"&er must #ointto some s#eci'c#ro(isions of t%est"tute)l"! "ut%ori*in+t%e deduction,

    NON RESIDEN ALIEN NO

    ENGAGED IN RADE OR B$SINESS"nd NON RESIDEN -OREIGN

    CORPORAION "re not "llo!ed tocl"im deductions

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    11/163

    Section 34 of the NIRC

    BASIC PRINCIPLES

    The taxpayer must prove that

    he is entitled to thededuction authorized orallowed.

    If the taxpayer fails to deduct certainexpenses for the taxable year, he cannot

    deduct them from the income of the next or

    any succeeding year 

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    12/163

    Section 34 of the NIRC

    BASIC PRINCIPLES

    CohanRule

    Principle 

    If expenses were incurred and there r no

    documentary evidence to support such,BIR must make an estimate of

    deduction that may be allowed in

    computing the taxpayer’s taxable

    income.

    disallowance of 867 of

    the taxpayer9s claimed

    deduction is -AID.att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    13/163

    KINDS O- ALLO.ABLE DED$CIONSI.

     PREMIUM PAYMENTS ON HEALTHand/or HOSPITALIZATION INSURANCE

    (PHHI)Section 34(M)

     premiums paid during the taxable year or

    health and!or hospitali"ation insuranceta#en by him on himsel$ including hisamily%

    "##lic"/le onl& to indi(idu"l

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    14/163

    I.

     PREMIUM PAYMENTS ON HEALTHand/or HOSPITALIZATION INSURANCE

    (PHHI)

    CONDITIONS B&'R& P* S+,, B&

     +,,-&. +S .&./C0*1 'R RSS*1C&%

    0, %"t t%efamily

     %"d " +ross income of notmore t%"n t!o %undred 'ft& t%ous"nd

    #esos 1P2345444,446 for t%e t"x"/le &e"r,

    NUCLEAR

    FAMILY

    PARENTS and theCHILDREN who are not

    yet taxpayers their

    incomenotwithstandin .att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    15/163

    I.

     PREMIUM PAYMENTS ON HEALTHand/or HOSPITALIZATION INSURANCE

    (PHHI)

    CONDITIONS B&'R& P* S+,, B&

     +,,-&. +S .&./C0*1 'R RSS*1C&%

    2, In case of married persons5 onl& t%es#ouse cl"imin+ t%e "ddition"l exem#tions

    for de#endents s%"ll /e entitled to t%ededuction7

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    16/163

    I.

     PREMIUM PAYMENTS ON HEALTHand/or HOSPITALIZATION INSURANCE

    (PHHI)

    CONDITIONS B&'R& P* S+,, B&

     +,,-&. +S .&./C0*1 'R RSS*1C&%

    8, %e deduction s%"ll not exceed P25944

    for t%e f"mil&5 or P244 " mont%,

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    17/163

    KINDS O- ALLO.ABLE DED$CIONSII.

    OPTIONAL STANDARD DEDUCTION(OSD)Section 34(L)

      !  is a deduction from gross income allowed

    to be ta:en in lieu of the itemi1ed deductions.

    A""lica#le to IN!I$I!UAL (#%t not tonon&'eient alien) 

    a""lica#le alo to CR*RA+IN a

    allo,e #y Sec. 3 of R.A. -54.att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    18/163

    REEN!E RE"!LATI#NSREEN!E RE"!LATI#NS

    N#. $%&'(()N#. $%&'(()Implementing the Provisions of ection !"#$%Implementing the Provisions of ection !"#$%

    of the &ax 'ode of ())*, +s +mended byof the &ax 'ode of ())*, +s +mended by

    ection ! Republic +ct o. )-", /ealing onection ! Republic +ct o. )-", /ealing on

    the 0ptional tandard /eduction #0/%the 0ptional tandard /eduction #0/%

    +llowed to Individuals and 'orporations in+llowed to Individuals and 'orporations in'omputing their &axable Income'omputing their &axable Income

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    19/163

    PERS#NS C#ERED*PERS#NS C#ERED*

    0.0. Indi/iduals;Indi/iduals;i. %esident &iti1eni. %esident &iti1en

    ii. !on

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    20/163

    II.

    OPTIONAL STANDARD DEDUCTION(OSD)

    !

    RA+E

    4/

    "f Gross Sales=Gross

    %eceipts

    I!DI-ID*A #APA$(%S,

    other than NRA

    4/

    "f Gross Income&"%P"%A#(

    #APA$(%S 

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    21/163

    It s%ould /e em#%"si*ed t%"t t%eIt s%ould /e em#%"si*ed t%"t t%e

    cost o salescost o sales in c"se ofin c"se of indi(idu"lindi(idu"lseller of +oodsseller of +oods5 or t%e5 or t%e cost o ser6ices cost o ser6ices  in t%ein t%e c"se of indi(idu"l seller ofc"se of indi(idu"l seller of

    ser(icesser(ices5 "re5 "re not allowed to benot allowed to bededucted for purposes ofdeducted for  purposes of

    ete#minin% ete#mini n%   the basis of the OSDthe basis of the OSD pursuant to this Section inasmuch pursuant to this Section inasmuch

    as the law (R !"#$% is speci&c as toas the law (R !"#$% is s peci&c as to

    the basis thereof which states thatthe basis thereof which states that

    for indi'iduals the basis of the $#)for indi'iduals  the basis of the $#)

    OSD shall be the *+ross sales, orOSD shall be the * +ross sales, or* ** *att.cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    22/163

    In the case ofIn the case of sellers of ser/icessellers of ser/ices, the, the

    termterm “gross income” “gross income”   means the >grossmeans the >gross

    receipts? less sales returns, allowances,receipts? less sales returns, allowances,discounts and cost of ser/ices.discounts and cost of ser/ices. >>Cost ofCost of

    services” services”   means all direct costs andmeans all direct costs and

    expenses necessarily incurred toexpenses necessarily incurred topro/ide the ser/ices re@uired by thepro/ide the ser/ices re@uired by the

    customers and clients includingcustomers and clients including

    salaries and employees benefits ofsalaries and employees benefits ofpersonnel, consultants and specialistspersonnel, consultants and specialists

    directly rendering the ser/ice,directly rendering the ser/ice,

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    23/163

    SE/. !. I&&0S)RA)I1E E2A*&ES I'SE/. !. I&&0S)RA)I1E E2A*&ES I'

    DE)ERI'I'G )%E 4ASIS 5 )%E #"6DE)ERI'I'G )%E 4ASIS 5 )%E #"6

    SD 5R I'DI1ID0A&S A'DSD 5R I'DI1ID0A&S A'D

    /R*RA)I'S./R*RA)I'S.

    Suppose a retailer of goods, whoseSuppose a retailer of goods, whose

    accounting method is under the accrualaccounting method is under the accrual

    basis, has a gross sales of P0,666,666.66basis, has a gross sales of P0,666,666.66

    with a cost of sales amounting to P66,66.with a cost of sales amounting to P66,66.

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    24/163

    if Indi/idualif Indi/idual If &orporationIf &orporation

    Gross SalesGross Sales P0,666,666P0,666,666 P0,666,666P0,666,666

    ess; &ost of Goods Soldess; &ost of Goods Sold   66,666  66,666

    )asis of the "SD)asis of the "SD P0,666,666P0,666,666 P 266,666P 266,666

    "SD %ate 3maximum4 "SD %ate 3maximum4   .56  .56   .56  .56

    "SD Amount"SD Amount P 566,666P 566,666 P 6,666P 6,666

    BBBBBBBBBBBBBBBBBBBBBB BBBBBBBBBBBBBBBBBBBBBB

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    25/163

    If If  Indi(idu"lIndi(idu"lIf Cor#or"tionIf Cor#or"tion

    GrossGross S"lesS"les P054445444P054445444 P054445444P054445444

    Less:Less: Cost of S"lesCost of S"les   ;445444  ;445444

    Gross S"les)GrossGross S"les)Gross P054445444P054445444 P 2445444P 2445444

      Less: OSDLess: OSD 1m"ximum61m"ximum6  9445444  9445444  ;45444 ;45444

    Net IncomeNet Income P

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    26/163

    REEN!E RE"!LATI#NSREEN!E RE"!LATI#NS

    N#. '&'($(N#. '&'($(Amendment to Sections < "nd >Amendment to Sections < "nd >of Re(enue Re+ul"tions No, 0

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    27/163

    If the GPP a/ailed of the itemi1ed deduction inIf the GPP a/ailed of the itemi1ed deduction in

    computing its net income,computing its net income, the partners may stillthe partners may still

    claim itemi1ed deductions from said share,claim itemi1ed deductions from said share,pro/ided, that, in claiming itemi1ed deductions,pro/ided, that, in claiming itemi1ed deductions,

    the partner is precluded from claiming the samethe partner is precluded from claiming the same

    expenses already claimed by the GPP.expenses already claimed by the GPP. If theIf the

    GPP claimed itemi1ed deductions the partnersGPP claimed itemi1ed deductions the partnerscomprising it can only claim itemi1edcomprising it can only claim itemi1ed

    deductions which are in the nature of ordinarydeductions which are in the nature of ordinary

    and necessary expenses for the practice ofand necessary expenses for the practice ofprofession which were not claimed by the GPPprofession which were not claimed by the GPP

    in computing its ne income or distributable netin computing its ne income or distributable net

    income during the year.income during the year.att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    28/163

    (xamples of these are(xamples of these are

    representation expensesrepresentation expenses incurred byincurred bythe partner where the co/ering in/oicethe partner where the co/ering in/oice

    of receipt is issued in his nameCof receipt is issued in his nameC

    tra/elling expensestra/elling expenses while away fromwhile away fromhone, which were not li@uidated by thehone, which were not li@uidated by the

    partnershipCpartnershipC depreciation of a cardepreciation of a car usedused

    in the practice of profession where saidin the practice of profession where saidcar is registered in the name of thecar is registered in the name of the

    partner andpartner and similar expenses.similar expenses.

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    29/163

    Hence,Hence,  ifif the GPP a/ailed of itemi1edthe GPP a/ailed of itemi1ed

    deductions, the partners are not alloweddeductions, the partners are not allowed

    to claim the "SD from their share in theto claim the "SD from their share in thenet income because the "SD is a proxynet income because the "SD is a proxy

    for all the items of deductions allowed infor all the items of deductions allowed in

    arri/ing at taxable income.arri/ing at taxable income.

    If the GPP a/ails of "SD in computing itsIf the GPP a/ails of "SD in computing its

    net income, the partners comprising it cannet income, the partners comprising it can

    no longer claim further deduction fromno longer claim further deduction from

    their share in the said net income.their share in the said net income.att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    30/163

    If t%e #"rtner "lso deri(esIf t%e #"rtner "lso deri(es ot%er +rossot%er +ross

    income from tr"de5 /usiness or #r"ctice ofincome from tr"de5 /usiness or #r"ctice of

    #rofession "#"rt "nd distinct from %is s%"re#rofession "#"rt "nd distinct from %is s%"re

    in t%e net income of t%e GPP5in t%e net income of t%e GPP5 t%et%e

    deduction t%"t %e c"n cl"im from %is ot%erdeduction t%"t %e c"n cl"im from %is ot%er

    +ross income !ould follo! t%e s"me+ross income !ould follo! t%e s"mededuction "("iled of from %is #"rtners%i#deduction "("iled of from %is #"rtners%i#

    income "s ex#l"ined in t%e fore+oin+ rules,income "s ex#l"ined in t%e fore+oin+ rules,

    Pro6ided$ ho7e6er$ that i the PP opts orPro6ided$ ho7e6er$ that i the PP opts or

    the S.$the S.$ t%e indi(idu"l #"rtner m"& stillt%e indi(idu"l #"rtner m"& stillcl"im 94 of its +ross income from tr"de5cl"im 94 of its +ross income from tr"de5

    /usiness or #r"ctice of #rofession/usiness or #r"ctice of #rofession +,t not+,t not

    to inc-,de his share rom the netto inc-,de his share rom the net

    income o the "PP.income o the "PP.att.cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    31/163

    II.OPTIONAL STANDARD DEDUCTION (OSD)

    the taxpayer must signifies in his return his

    intention to elect ptional Standard Deduction7 

    OTHERWISE , he shall be considered as ha/ing

    a/ailed of the Itemi8ed Deductions.

    The election of OSD is irrevocable forthe taxable year for which the choice is

    made.att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    32/163

     %e election to cl"im eit%er t%e OSD or t%e %e election to cl"im eit%er t%e OSD or t%e

    itemi*ed deduction for t%e t"x"/le &e"ritemi*ed deduction for t%e t"x"/le &e"r mustmust

    /e si+ni'ed /& c%ec@in+ t%e "##ro#ri"te /ox/e si+ni'ed /& c%ec@in+ t%e "##ro#ri"te /ox

    in t%e income t"x return 'led for t%e 'rstin t%e income t"x return 'led for t%e 'rstu"rter of t%e t"x"/le &e"r "do#ted /& t%eu"rter of t%e t"x"/le &e"r "do#ted /& t%e

    t"x#"&er,t"x#"&er, Once t%e election is m"de5Once t%e election is m"de5 t%et%e

    s"me te of deduction must /e consistentl&s"me te of deduction must /e consistentl&

    "##lied for "ll t%e succeedin+ u"rterl&"##lied for "ll t%e succeedin+ u"rterl&

    returns "nd in t%e 'n"l income t"x return forreturns "nd in t%e 'n"l income t"x return for

    t%e t"x"/le &e"r, An& t"x#"&er !%o ist%e t"x"/le &e"r, An& t"x#"&er !%o is

    reuired /ut f"ils to 'le t%e u"rterl& incomereuired /ut f"ils to 'le t%e u"rterl& incomet"x return for t%e 'rst u"rter s%"ll /et"x return for t%e 'rst u"rter s%"ll /e

    consideredconsidered "s %"(in+ "("iled of t%e itemi*ed"s %"(in+ "("iled of t%e itemi*ed

    deductions o#tiondeductions o#tion for t%e t"x"/le &e"r,for t%e t"x"/le &e"r,

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    33/163

    II.OPTIONAL STANDARD DEDUCTION (OSD)

    S%A&& ') A**&+ #"GRSS /*E'SA)I'

    I'/E A%ISI!G "*# "+('P"$(%

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    34/163

    KINDS O- ALLO.ABLE DED$CIONSIII.

    ITEMIZED DEDUCTIONSSection 34(A to J)

    T&ese a#e expenses #elate to t#ae o#

    b"siness o# to t&e p#actice o' p#o'ession

    "##lic"/le to BO indi(idu"l "ndcor#or"te t"x#"&ers

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    35/163

    III.ITEMIZED DEDUCTIONS

    /INDS #0 ITE1I2ED

    DED!CTI#N1/& st"tutor& cl"ssi'c"tion6

     A.)usiness (xpenses

    ).Interest

    &.#axes

    D.osses

    (.)ad Debtsatt. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    36/163

    III.ITEMIZED DEDUCTIONS

    /INDS #0 ITE1I2ED

    DED!CTI#N1/& st"tutor& cl"ssi'c"tion6

    +. Depreciation

    G. DepletionH. &haritable and "ther &ontributions

    I. %esearch and De/elopment (xpenditure

      . Pension #rust &ontribution

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    37/163

    III.

    ITEMIZED DEDUCTIONS

     A.)usiness (xpenses

    #he expenses must be RDI'AR+ and 'E/ESSAR+

    when it is normal or

    common or usual in

    relation to the businessof the taxpayer and the

    surrounding

    circumstances.

    !%ere it is "##ro#ri"te"nd %el#ful in t%e

    de(elo#ment of t%et"x#"&ers /usiness5

    me"nin+ it isintended to rea-i3e

    a pro4t or to

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    38/163

    III.

    ITEMIZED DEDUCTIONS

     A.)usiness (xpenses

    #he expenses must be incurred in trade or business

    carried on - the taxpaer.

    #he expenses must be substantiated by proof 

    not incurred in the tradeor business of another.

    Receipts are the best proof BUT theburden of proof lies upon the taxpayer

    to establish the relationship of the

    expenses and the business.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    39/163

    III.

    ITEMIZED DEDUCTIONS

     A.)usiness (xpenses

    #he expenses must be reasonable

    #he expenses must not be against public policy,

    public moral or law.

    If the expense is subEect to withholding tax,

    proof of payment to )I% must be shown

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    40/163

    '& Garcia, a contractor who won thebid for the construction of a public

    highway, claims as expenses,

    facilitation fees which according to

    him is standard operating procedurein transactions with the go/ernment,

     Are these expenses allowable as

    deduction from gross incomeF

    1(() BAR Examination

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    41/163

    III.

    ITEMIZED DEDUCTIONS

     A.)usiness (xpenses

    #he expenses must be paid or incurred during the

    taxable year.

    +,o (0) Acco%ntin1 Metho

    in the recognition of expenses

    /AS% E)%D%ecogni1ed when paid

    so, expenses will be

    deducted in the year in

    which they are paid.

    A//R0A& 4ASISE)%D

    %ecogni1ed when incurred so,

    expenses will be deducted in

    the year in which they accrue.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    42/163

    +,o (0) Acco%ntin1 Metho

    in the recognition of expenses

    /AS% E)%D

    %ecogni1ed whenpaid so, expenses

    will be deducted in

    the year in which

    they are paid.

    &ash basis tax payers include

    income ,hen it is #ecei!e ,

    and claim deductions ,henexpenses are pai .   A cash

    basis taxpayer can loo: to the

    doctrine of constructi/e receipt

     and the

    doctrine of cash e@ui/alence to

    help determine when income is

    recei/ed.

    http://en.wikipedia.org/wiki/Constructive_receipthttp://en.wikipedia.org/wiki/Doctrine_of_Cash_Equivalencehttp://en.wikipedia.org/wiki/Doctrine_of_Cash_Equivalencehttp://en.wikipedia.org/wiki/Constructive_receipt

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    43/163

    +,o (0) Acco%ntin1 Metho

    in the recognition of expenses

    A//R0A&

    4ASISE)%D

    %ecogni1ed when

    incurred so,

    expenses will bededucted in the year

    in which they accrue.

     Accrual basis taxpayers

    include items ,hen the

    are ea#ne  and claimdeductions ,hen expenses

    are inc"##e .   An accrual

    basis taxpayer loo:s to the >

    allearlier

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    44/163

    +,o (0) Acco%ntin1 Metho

    in the recognition of expenses

    A//R0A&

    4ASISE)%D

    %ecogni1ed when

    incurred so,

    expenses will bededucted in the year

    in which they accrue.

    *nder the all9events test7 an

    accrual basis taxpayer

    generally must incl"eincome *'o# t&e taxable

    $ea# +&en all t&e e!ents

    &a!e occ"##e t&at 'ix t&e

    #i%&t to #ecei!e income ant&e amo"nt o' t&e income

    can be ete#mine +it&

    #easonable acc"#ac$ .

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    45/163

    +,o (0) Acco%ntin1 Metho

    in the recognition of expenses

    A//R0A&

    4ASISE)%D

    %ecogni1ed when

    incurred so,

    expenses will bededucted in the year

    in which they accrue.

    *nder the :earlier9of test:7

    an accrual basis taxpayer

    recei/es income when; (;$  the re@uired performance

    occurs,

    (

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    46/163

     "estion A/ 2010 BAR Examination

    hat is the >all e/ents test?F

    (xplain briefly.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    47/163

    III.

    ITEMIZED DEDUCTIONS

    I!DS of )*SI!(SS (P(!S(S

    Re"isites

    < Personal ser/ices actuall rendered< &ompensation is for such ser/ices rendered.

    < %easonable

    0, Com#ens"tion for Person"l

    Ser(ices

    Salary e!enses are allo"e# as #e#$ctions from gross

    %$siness income only i' t&e co##esponin% +it&&olin%

    tax &as been e"cte an #emitte to t&e BR 

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    48/163

    III.

    ITEMIZED DEDUCTIONS

    I!DS of )*SI!(SS (P(!S(S

    2, r"(ellin+ Ex#enses

    1include tr"ns#ort"tion5 me"ls "nd lod+in+ex#enses

    Re"isites

    < Paid or incurred while “a,a from home”

    < Paid or incurred in the conduct of trade or

    -usiness

    < %easonable and necessary necessary

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    49/163

    III.

    ITEMIZED DEDUCTIONS

    I!DS of )*SI!(SS (P(!S(S

    8, Re#resent"tion "nd Entert"inment

    Ex#ensesRe"isites

    < Paid or incurred in the conduct of trade or

    business

    < Paid or incurred during the taxable year < !ot contrary to law, morals and public policy

    < %easonable and necessary

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    50/163

    III.

    ITEMIZED DEDUCTIONS

    I!DS of )*SI!(SS (P(!S(S

    9, Ad(ertisin+ "nd Promotion"l Ex#enses

    Re"isites

    < 'ust be substantiated.

    < All payments for the purchase of promotional gi/e<

    aways, contest pri1es or similar material m"stbe p#ope#l$ #eceipte.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    51/163

    III.

    ITEMIZED DEDUCTIONS

    I!DS of )*SI!(SS (P(!S(S

    3, Rent Ex#ense

    Fo# b"siness p#ope#t$

      at least P866  !6

    Non-b"siness3#esiential p#ope#t$ 

    < at least P06,666 !6

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    52/163

    III.

    ITEMIZED DEDUCTIONS

    I!DS of )*SI!(SS (P(!S(S

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    53/163

    III.

    ITEMIZED DEDUCTIONS

    I!DS of )*SI!(SS (P(!S(S

    >, Re#"irs

    Rules on deducti-ilit=

    nciental o# o#ina#$ #epai#s are deducti-le

    keeps the asset in its ordinary workincondition Ext#ao#ina#$ #epai#s are not deducti-le

    expenses incurred that will add material valueto the property or prolon its life. They are

    capital expenditures.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    54/163

    III.

    ITEMIZED DEDUCTIONS

    E5E1PTI#N* CPIT. EXPENDIT/RESALLO.ABLE OPRIAE

    ED$CAIONAL INSI$IONS

    Section 891A6126

    GE'ERA& R0&E= &API#A (P(!DI#*%(S

     A%( !"# D(D*I)(.

    *)I'S=

    0. Deduct immediately as expenditures

    2. Deduct as allowances for depreciationatt. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    55/163

    III.

    ITEMIZED DEDUCTIONS

    ). Interest (xpenses

    amount which one has contracted to pay for

    the use of -orro,ed mone or amount ofcompensation paid for the use of mone or

    for-earance from such use.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    56/163

    III.

    ITEMIZED DEDUCTIONS

    ). Interest (xpenses

    #here must be an indebtedness.*no indebtedness no deduction,

    interest or penalties or crimecommitted are NOT DED/CTI0.E-

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    57/163

    III.

    ITEMIZED DEDUCTIONS

    ). Interest (xpenses

    Indebtedness must be that of the taxpayer.

    Fo# co#po#ation,

    the loan must be obtained in itscorporate capacity, using corporate

    assets as security.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    58/163

    III.

    ITEMIZED DEDUCTIONS

    ). Interest (xpenses

    #he debt must ha/e been incurred in

    connection with taxpayer9s trade or business.

    #he interest must ha/e been stipulated in writing.

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    59/163

    III.

    ITEMIZED DEDUCTIONS

    ). Interest (xpenses

    Interest must be paid or accruedwithin the taxable year.

    /ash 4asis > #e#$cti%le in the year it is act$ally

     !ai#&Accrual 4asis9 #e#$cti%le in the year it is accr$e#

    even if not act$ally !ai#&

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    60/163

    ). Interest (xpenses

    I!#(%(S# (P(!S( D(D*I)(

    I#H I'I#A#I"! Section 45B/1/

    Situation= #axpayer has interest income subEected to 267final tax and at the same time incurred during

    interest expense during the year 

    5or I'DI1ID0A&7

    the allowable deduction for

    interest expense shall be

    reduced by an amount e@ual

    to 3?6 of interest income

    !ormal #ax %ate J27

    ess; +inal #ax on

    Interest Income 267

    #ax Difference 027

    Di/ided by J27

    )ax Differential Rate 3?6

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    61/163

    ). Interest (xpenses

    I!#(%(S# (P(!S( D(D*I)(

    I#H I'I#A#I"! Section 45B/1/

    record shows the

    following data;

    Interest (xpense on

    business loan P28,666Interest Income

    on #ime Deposit P06,666

    How much is the interest

    expense deductibleF

     Actual Interest

    (xpense P28,666

    ess; #ax differentialon interest income

    '(),))) *+- P J,66

    Deducti-le

    Interest Expense *

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    62/163

    ). Interest (xpenses

    I!#(%(S# (P(!S( D(D*I)(

    I#H I'I#A#I"! Section 45B/1/

    Situation= #axpayer has interest income subEected to 267final tax and at the same time incurred during

    interest expense during the year 

    5or /R*RA)I'7

    the allowable deduction for

    interest expense shall be

    reduced by an amount e@ual

    to 336 of interest income

    !ormal #ax %ate J67

    ess; +inal #ax on

    Interest Income 267

    #ax Difference 067

    Di/ided by J67

    )ax Differential Rate 336

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    63/163

    ). Interest (xpenses

    I!#(%(S# (P(!S( D(D*I)(

    I#H I'I#A#I"! Section 45B/1/

    &orporation record

    shows the following data;

    Interest (xpense on

    business loan P86,666Interest Income

    on #ime Deposit P56,666

    How much is the interest

    expense deductibleF

     Actual Interest

    (xpense P86,666

    ess; #ax differentialon interest income

    '.),))) **- P 0J,266

    Deducti-le

    Interest Expense *3@7?""

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    64/163

    ). Interest (xpenses

    !"! D(D*I)( I!#(%(S# (P(!S(

    Section 45B/2/

    0. Interest paid in ad/ance or Prepaid InterestSection */'0-'/-'a-

    If ta!ayer is re!orting income on CASH

    0ASIS, the interest e!ense of a %$siness

    loan  pai in a!ance shall %e allo+e as

    e"ction in t&e $ea# t&at t&e p#incipal

    inebteness is F6778 9AD.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    65/163

    ). Interest (xpenses

    !"! D(D*I)( I!#(%(S# (P(!S(

    Section 45B/2/

    0. Interest paid in ad/ance or Prepaid InterestSection */'0-'/-'a-

    If the in#e%te#ness is !aya%le in !erio#ic

    amorti1ation, the amo"nt o' inte#est

    expense +&ic& co##espons to t&e

    amo"nt o' t&e p#incipal amo#ti:e o# pai

    "#in% t&e $ea# SHA22 0E A22OWE3 AS

    3E34CTION IN S4CH TA5A02E 6EAR&

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    66/163

    ). Interest (xpenses

    !"! D(D*I)( I!#(%(S# (P(!S(

    Section 45B/2/

    2. Interest payment on indebtedness not business

    relatedC

      Interest payment in fa/or of a relati/e 3related

    debtor and creditor4Section */'0-'/-'%-

    J. Interest paid on indebtedness to finance

    petroleum explorations.Section */'0-'/-'c-

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    67/163

    ). Interest (xpenses

    "P#I"!A #%(A#'(!# "+ I!#(%(S# (P(!S(

    Section 45B/4/

    Interest incurred by the taxpayer toacuire propert used in trade or

    -usiness or exercise of profession

    TA5PA6ER has T7# 8'9#PTI#NS:

    0,DED$C I O$RIG2,REA I AS CAPIAL

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    68/163

    (xplain if the following items are deductible from

    gross income for income tax purposes. Disregard

    who is the person claiming the expense.

    0.Interest on loans used to ac@uire capitale@uipment.

    2.Depreciation of goodwill.

     1(() BAR Examination

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    69/163

    III.

    ITEMIZED DEDUCTIONS

    &. #A(S

    Re2%iite fo' !e%cti#ility of +a3e 

    1.It must be paid or incurred within thetaxable year2.It must be paid or incurred in connectionwith the taxpayer’s profession, trade orbusiness3.The tax must be imposed directly upon the

    taxpayer

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    70/163

    &. #A(S

    !"! D(D*I)( #A(S from G%"SS I!&"'(

    1. Philippine income tax

    2. Estate and donor9s taxes(Sec. 83, Rev. Regs. No. 2.)

    3. Foreign income tax, if claimed as a taxcredit

    4. Percentage tax on stock transaction5. Value-added tax

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    71/163

    &. #A(S!"! D(D*I)( #A(S from G%"SS I!&"'(

    6. Taxes not related to business, trade, orprofession7. Other items related to tax such as:

    - Special assessment tax

    - Surcharges  - Compromise penalty

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    72/163

    ). Interest (xpenses

    !"! D(D*I)( #A(S from G%"SS I!&"'(

    U+5

      *' 0&R& *S 0+8 R&'/1. or 0+8 CR&.*0$ S+&S+,, B& *1C,/.&. +S P+R0 ' RSS *1C&*1 0& 9&+R ' R&C&*P0 0 0& &80&10' 0&

    *1C& 0+8 B&1&'*0 ' S+*. .&./C0*1%

    +A6 ENEFI+ RULE

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    73/163

    &. #A(S

    #A(S D(D*I)( from G%"SS I!&"'(

    1. Documentary stamp taxes

    2. Occupational taxes3. Privilege and license taxes4. Excise taxes5. Import duties

    6. Local Business taxes7. Automobile registration fees8. Community tax9. Municipal tax

    http://www.animationfactory.com/en/search/close-up.html?&oid=4953912&s=1&sc=1&st=110&q=yes&spage=1&hoid=046fce32c0e40af499ed12e1cbcb1717

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    74/163

    &. #A(S

    #A(S D(D*I)( from G%"SS I!&"'(

    0#R: NRA&ET; and

    R0C *

    ALLO.ED ONLF I- AXES ARECONNECED .I INCOME -ROM

    SO$RCES .IIN E PILIPPINES,Section 891C6126

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    75/163

    III.

    ITEMIZED DEDUCTIONS

    D. "SS(S

    red,ctions on reso,rces dueto unintended destruction

    ordepri

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    76/163

    &API#A GAI! &API#A "SS

    Section 4(A/2/4/

    o' t&e NRC 

    "%DI!A%$ GAI! R!INARY LSS

    D. "SS(S

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    77/163

    D. "SS(S

    Re=,isites or Ded,cti+i-ity o #rdinaryLosses1.The loss must beactually sustainedin a

    closed and completed transaction;

    2. The loss must be that of the taxpayer andincurred in trade, profession or business;

    3. The lossmust not be compensated byinsurance or other forms of indemnity;

    4. The loss must bereported to the BIR from 30days to 90 days from the date of its

    discovery.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    78/163

    D. "SS(S

    !"! D(D*I)( "SS(S from G%"SS I!&"'(

    3not allowed by law as deductions4

    1. Loss on voluntary removal of building on landpurchased with a view to erect another building(Sec. 97, Rev. Reg. No. 2);

    2. Gambling losses not covered by gambling

    gains(Sec. 34[D][6], NIRC);!an be allowed as deductions to the extent ofamblin wins. "OT #$$O%&D #S D&DU!T'O"from business income( compensation income and

    ains from sale of capital assets.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    79/163

    D. "SS(S

    !"! D(D*I)( "SS(S from G%"SS I!&"'(

    3not allowed by law as deductions4

    3. Capital loss not covered by capital gains(Sec. 34[D][4], NIRC);

    &apital oss

    deductible to the

    extent of &apitalGain, can not

    -e deducti-le

    from rdinar

    Gain

    To !reserve Section *.'A-'(- of the

    NIRC that only OR3INAR6 an#

    NECESSAR6 E57ENSES "ill %eallo"e# to %e #e#$cte# from the 8ross

    Income&

    Capital Loss is not a business connected

    expense, not ordinary expense.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    80/163

    D. "SS(S

    !"! D(D*I)( "SS(S from G%"SS I!&"'(

    3not allowed by law as deductions4

    4.Losses fromexchanges of propertyin corporate readjustments

    (Sec. 40, NIRC);

    S ti .)'C- f th NIRC SA&ECE2/%A'GE 5 *R*ER)+

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    81/163

    'o GAI'7 'o &SS RecoBni8ed (Gain not

    taxa-le7 &oss not deducti-le

    !" &ASH IS GI-(!,

    T;EREFORE, TA<

    E

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    82/163

    TRANSACTI#N

    S N#TS#LEL6 IN

    /IND

    >AN is RECO>N?ED

    B6T 7OSS isNOT

    DED6CTB7E.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    83/163

    D. "SS(S

    !"! D(D*I)( "SS(S from G%"SS I!&"'(

    3not allowed by law as deductions4

    5. Losses from illegal transactions(Sec. 96, Rev. Reg. No. 2)

    6. Losses from sales or exchanges of property between related taxpayers

    (Sec. 36 [B], NIRC).

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    84/163

    #THER TRANSACTI#NS 7HEREIN THE

    "AIN IS REC#"NI2ED AND L#SS ISN#T DED!CTI;LE

    0. Illegal #ransactions

    2. #ransactions between %elated #axpayers. Section JK3)4, !I%&

    Strangers, Section LL3)4 of the !I%&

    #THER TRANSACTI#NS 7HEREIN THE

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    85/163

    #THER TRANSACTI#NS 7HEREIN THE

    "AIN IS REC#"NI2ED AND L#SS IS N#TDED!CTI;LE

    J. ash Sale, Section *+ of the NIRC 

     A sale or #is!osition of stoc9 or sec$rities, %y a

    seller "ho is not a #ealer in sec$rities or shares or

    stoc9s, "here s$%stantially i#entical sec$rities areac:$ire# or !$rchase# "ithin a ;( #ay !erio#,

    %eginning *) #ays %efore the sale an# en#ing *)

    #ays after the sale&

    Even if sol# %y a #ealer in sec$rities if the

    transaction "as not ma#e in the or#inary co$rse of

    the %$siness of s$ch #ealer, there is WASH SA2E&

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    86/163

    D. "SS(S

    !"! D(D*I)( "SS(S from G%"SS I!&"'(

    3not allowed by law as deductions4

    M. Losses from exchanges of property wherethe property received is not substantiallydifferent from the property disposed of

    (Sec. 40, NIRC);

    8. Losses not incurred in trade, profession or business or in any transaction entered intofor profit

    (Sec. 36 [A], NIRC)

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    87/163

    Gi/e the re@uisites for deductibility of a loss.

    1(() BAR Examination

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    88/163

    D. "SS(S

    D(D*I)( "SS(S from G%"SS I!&"'(3 !rovi#e# the re:$isites for #e#$cti%ility are com!lie# "ith4

    Re=,isites or Ded,cti+i-ity o #rdinaryLosses1.The loss must beactually sustainedin a

    closed and completed transaction;2. The loss must be that of the taxpayer and

    incurred in trade, profession or business;

    3. The lossmust not be compensated byinsurance or other forms of indemnity;

    4. The loss must bereported to the BIR from 30days to 90 days from the date of its

    discovery.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    89/163

    D. "SS(S

    D(D*I)( "SS(S from G%"SS I!&"'(3 !rovi#e# the re:$isites for #e#$cti%ility are com!lie# "ith4

    0, Business losses suc% "s losses incurred intr"de or #rofession7

    2, C"su"lt& losses suc% "s losses due to storms5'res5 s%i#!rec@ or ot%er

    c"su"lties of #ro#ert& connected!it% #rofession5 tr"de or

    /usiness78, Losses of /usiness #ro#ert& due to t%eft5

    ro//er& or em/e**lement79, Net O#er"tin+ Loss C"rr& O(er 1NOLCO6,

    Section >?8D98>9

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    90/163

    D. "SS(S

    D(D*I)( "SS(S from G%"SS I!&"'(3 !rovi#e# the re:$isites for #e#$cti%ility are com!lie# "ith4

    In case of PA%#IA "SS, what is the measure of lossF

    Cost to restore !ro!erty %ac9 to its normal

    con#ition OR   0oo9

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    91/163

    NET CAPITAL L#SS CARR6 #ER

    8NCLC#9Section 3:(.) o the 1*RC

     Applies only to Indi/idual #axpayer and

    'E1ER to a /orporate )axpaer.

    NET #PERATIN" L#SS CARR6 #ER8N#LC#

    Section 34(.)(3) the 1*RC

    !"#

    # H(sameas

    APPLICABLE O BO INDIID$AL "ndCORPORAE AXPAFERS

    D. "SS(S

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    92/163

    NET #PERATIN" L#SS CARRF OER1NOLCO

    Section 34(.)(3) o the 1*RC

    D. "SS(S

    the excess of allowable deductions

    o/er gross income of the business or

    enterprise for any taxable year.Section 45D/4/ii/

    #he net operating loss, +&ic& &a not been

     p#e!io"sl$ o''set as e"ctions '#om %#oss income, 

    shall be carried o/er as a deduction from gross income

    for the next three (3$ consecutive taxa-le ears 

    immediately following the year of such loss.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    93/163

    NET #PERATIN" L#SS CARRF OER 1NOLCOSection 34(.)(3) o the 1*RC

    H" A%( (!#I#(D #" &AI' !"&"F

    Indi/idual taxpayers engaged in trade or

    business or in the exercise of his profession.

    Domestic and resident

    foreign corporations subEect

    to normal income tax.

    Special &orporation subEect to preferential tax rates

    such as pri/ate educational institutions, hospitals,

    and regional operating head@uarters.

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    94/163

      2007 2008 2009 2010 2011Salary as a professor

    Gross business income

    Business deductions

    P180,000

    200,000

    350,000

    P190,000

    250,000

    200,000

    P200,000

    300,000

    340,000

    P210,000

    400,000

    380,000

    P210,000

    600,000

    400,000

     X, single, reported the following income and expenses:

    Gross business income

    Business deductions

    Income(loss) from business

    Less: Applicable NOLCO

    Net business income (loss)Salary as a professor

    Taxable income before

    personal exemption

    P 200,000

    ( 350,000)

    (P150,000)

      .

    (P150,000)P 180,000

    P 180,000

    P 250,000

    ( 200,000)

    P 50,000

    ( 50,000)

    P - 0 –P 190,000

    P 190,000

    P340,000

    (300,000)

    P 40,000

    ( 40,000)

    P – 0 –P200,000

    P200,000

    P400,000

    (380,000)

    P 20,000

    ( 20,000)

    P - 0 -P210,000

    P210,000

    P600,000

     400,000

    P200,000

      .

    P200,000 210,000

    P410,000

     X’s taxable income before personal exemption for the

    said years would be:

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    95/163

    Gross business income

    Business deductions

    Income(loss) from businessLess: Applicable NOLCO

    Net business income (loss)

    Salary as a professor

    Taxable income before

    personal exemption

    P 200,000

    ( 350,000)

    (P150,000)  .

    (P150,000)

    P 180,000

    P 180,000

    P 250,000

    ( 200,000)

    P 50,000( 50,000)

    P - 0 –

    P 190,000

    P 190,000

    P340,000

    (300,000)

    P 40,000( 40,000)

    P – 0 –

    P200,000

    P200,000

    P400,000

    (380,000)

    P 20,000( 20,000)

    P - 0 -

    P210,000

    P210,000

    P600,000

     400,000

    P200,000  .

    P200,000

     210,000

    P410,000

    )NO!O cannot be deducted a"ainst compensationincome #employer$employee relationship%.

    @t%e rem"inin+ P945444 NOLCO c"nnot /e deductedfrom t%e /usiness income of t%e &e"r 2400 /ec"uset%e t%ree?&e"r re+lement"r& #eriod %"s ex#ired,

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    96/163

    NET #PERATIN" L#SS CARRF OER

    1NOLCOSection 34(.)(3) o the 1*RC

    If a person, nat$ral or

     =$ri#ical, is enEoyingtax exemption

    pursuant to the !I%&

    or any special law,

    N+

    EN+I+LE! +

    !E!UC+

    NLC

    +%"' G%"SSI!&"'(

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    97/163

    NET #PERATIN" L#SS CARRF OER

    1NOLCOSection 34(.)(3) o the 1*RC

    In cases of )*SI!(SS

    &"')I!A#I"!S, if there

    is a su-stantial chanBein the ownership of

    business.

    N+

    EN+I+LE! +

    !E!UC+

    NLC

    +%"' G%"SS

    I!&"'(

    If less than !6  percent of thepaid9up capital  or nominal

    value of outstandinB shares

    retained by the same persons.att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    98/163

    NET #PERATIN" L#SS CARRF OER

    1NOLCOSection 34(.)(3) o the 1*RC

    In cases of )*SI!(SS

    &"')I!A#I"!S, if there

    is ' su-stantialchanBe in the ownership

    of business.

    NLC I

    ALL7E! +

    E

    !E!UC+E!

    +%"' G%"SS

    I!&"'(

    If ') less than !6 percent ofthe paid9up capital  or nominal

    value of outstandinB shares

    retained by the same persons.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    99/163

    NET #PERATIN" L#SS CARRF OER

    1NOLCOSection 34(.)(3) o the 1*RC

    0#R 1INES3other than oil and gas wells4

    NOLCO incurred in any of the first 10

    years of operation may be carried over asa deduction from taxable income for thenext 5 years immediately following theyear of such loss.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    100/163

    NET #PERATIN" L#SS CARRF OER 1NOLCOSection 34(.)(3) o the 1*RC

    0#R 1INES3other than oil and gas wells4

    "n December J0, 266A, Gold 'ines mar:ed its 06

    consecuti/e year of operation. It has an operating loss in

    year 266A amounting to PJ6,666,666.

    If Gold 'ines continues operation with the following

    data, the taxable income would be;

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    101/163

    NET #PERATIN" L#SS CARRF OER 1NOLCOSection 34(.)(3) o the 1*RC

    0#R 1INES3other than oil and gas wells4

    200B 200C 200D 200E 200F 200G(In millions of

    pesos)Revenue P 20 P30 P24 P28 P35 P40Cost of goods sold ( 5) ( 7) ( 6) ( 7) (10) (12)Operating expenses ( 13) (15) (15) (15) (16) (18)Net income (loss) P 2 P 8 P 3 P 6 P 9 P10

    NOLCO ( 2) ( 8) ( 3) ( 6) ( 9) - 0 -Taxable income - 0 - - 0 - - 0 - - 0 - - 0 - P10

    Only 7/+> o$t of 7*)> net o!erating loss is covere# %y the ?

    year !erio# for the #e#$cti%ility of NO2CO

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    102/163

    NET #PERATIN" L#SS CARRF OER 1NOLCOSection 34(.)(3) o the 1*RC

    SP(&IA="#H(% %*(S "! "SS(S

     A taxpayer who claims the #"6 SD shall

    not simultaneously claim deduction of the!"&". )he three9ear reBlementar

    period shall continue to run

    not,ithstandinB the fact that the aforesaid

    taxpayer a/ailed of the "SD during the said

    period

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    103/163

    NET #PERATIN" L#SS CARRF OER 1NOLCOSection 34(.)(3) o the 1*RC

    SP(&IA="#H(% %*(S "! "SS(S

    Domestic and resident foreign corporation

    taxed during the taxable year with /I)cannot enEoy the benefit of !"&".

    !e/ertheless, the runninB of the tee 4/

    $ea# pe#io  for the expir of '&/ is notinterrupted by the fact that such corporation

    is subEect to '&I#

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    104/163

    NET #PERATIN" L#SS CARRF OER 1NOLCOSection 34(.)(3) o the 1*RC

    SP(&IA="#H(% %*(S "! "SS(S

    a loss in one line of business is notpermitted as allowable deduction from gain

    in another line of business, if one of the two

    lines is exempted from tax.

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    105/163

    NET #PERATIN" L#SS CARRF OER 1NOLCOSection 34(.)(3) o the 1*RC

    H" A%( !"# (!#I#(D #" &AI' !"&"F

     O G s %o re 

     B" n @ i n+  $ n i t 

    " nd  -o re i+ n 

     C u r re nc & 

     De #o s i t  $ n i t

    Ent er #r ise r e+ist er ed !it % 

    t %e Bo"r d of  In(est ment s

    Enter#risere+istered !it%

    PEHA

    Enter#rise re+isteredunder t%e /"sesCon(ersion "nd

    De(elo#ment Act of 02-orei+n Cor#or"tions en+"+ed in

    Intern"tion"l S%i##in+ or "irc"rri"+e /usiness in t%e

    P%ili##ines,

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    106/163

    III.

    ITEMIZED DEDUCTIONS(. )AD D()#S

    claim that becomes worthless or uncollectible arising

    from money lent or from goods sold or ser/ices

    rendered.

    att. cleo d. sabado-andrada ca mba

    http://www.animationfactory.com/en/search/close-up.html?&oid=4951976&s=1&sc=1&st=54&q=bad%20debt&spage=1&hoid=ede74468273c8958869c33e9d96cc72dhttp://www.animationfactory.com/en/search/close-up.html?&oid=4951976&s=1&sc=1&st=54&q=bad%20debt&spage=1&hoid=ede74468273c8958869c33e9d96cc72dhttp://www.animationfactory.com/en/search/close-up.html?&oid=4951976&s=1&sc=1&st=54&q=bad%20debt&spage=1&hoid=ede74468273c8958869c33e9d96cc72dhttp://www.animationfactory.com/en/search/close-up.html?&oid=4951976&s=1&sc=1&st=54&q=bad%20debt&spage=1&hoid=ede74468273c8958869c33e9d96cc72d

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    107/163

    Reuisites for the deducti-ilit of 4ad De-ts Expense

    / charged off or written off against the boo:s of the taxpayer 

    0  the amount written off must be uncollectible in the nearfuture, no slim chance of reco/ery collecting such an

    amount.

    4  it must arise from business trade=profession

    A  ascertain to be worthless

    '  not arising from transactions between related taxpayers

    (. )AD D()#S

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    108/163

    A! !E+S REC$ERY

    Shall be included in the Gross Income in the

    year of reco/ery to the extent of the tax benefit

    of said deduction.

    So, upon reco/ery of bad debts, it is a taxa-le

    Bain

    (. )AD D()#S

    +A6 ENEFI+ RULE o' 

    RECA*+URE RULE

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    109/163

    III.ITEMIZED DEDUCTIONS

    +. D(P%(&IA#I"!

    annual reasonable allowance to reduce the usefulvalue of the tanBi-le fixed assets resulting from

    wear and tear and normal obsolescence

    For intangible assets such as patents,copyrights and franchise,the annual allowanceto reduce their useful value is called

    “amortization.”

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    110/163

    +. D(P%(&IA#I"!

    Re2%i(ite( fo' !e)%cti#ility8

    •It must be reasonable.

    •It must be charged off during the year.

    •The asset must be used in profession,trade or business.

    •The asset must have a limited useful life.

    att. cleo d. sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    111/163

    0. hat is the proper allowance for depreciation of

    any property used in trade or businessF

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    112/163

    +. D(P%(&IA#I"!

    MEODS O- DEPRECIAIONSection 3#(5$(

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    113/163

    +. D(P%(&IA#I"!

    MEODS O- DEPRECIAIONSection 3#(5$(

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    114/163

    +. D(P%(&IA#I"!

    MEODS O- DEPRECIAIONSection 3#(5$(

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    115/163

    +. D(P%(&IA#I"!

    DEPRECIAION O- PROPERIES $SED INPEROLE$M OPERAIONS

    Section 3#(5$(#$

    1ethod oDepreciation orINITIALL6 PLACED

    PR#PERTIES

    S+RAI9:+ ;LINE

    ME+:!

    DECLININ";ALANCE1ETH#D

    att.cleod.sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    116/163

    +. D(P%(&IA#I"!

    DEPRECIAION O- PROPERIES $SED INPEROLE$M OPERAIONS

    Section 3#(5$(#$

    1ethod oDepreciationor INITIALL6

    PLACEDPR#PERTIES

    S+RAI9:+

     ;LINEME+:!

    DECLININ";ALANCE

    1ETH#D

    Initially elected At any subse@uent date,

    It can change to

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    117/163

    +. D(P%(&IA#I"!

    DEPRECIAION O- PROPERIES $SED INPEROLE$M OPERAIONS

    Section 3#(5$(#$

    Estimated !SE0!L LI0E oPR#PETIES

    Directl& used orrel"ted in t%e

    #roduction of#etroleum

    $( years or "s%orter life "s

    #ermitted /& t%e BIR

    NO directl& used orrel"ted in t%e#roduction of

    #etroleum years ,nderthe Straight

    Line 1ethodatt.cleod.sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    118/163

    +. D(P%(&IA#I"!

    DEPRECIAION O- PROPERIES $SED INMINING OPERAIONSSection 3#(5$(!$

    1. Expected life is ten (10) years or less—THE

    NORMAL RATE OF DEPRECIATION.2. Expected life is more than ten (10) years–DEPRECIATED OVER ANY NUMBER OF YEARS

     between five (5) years and the expected life.

    3. The depreciation thereon allowed as deductionfrom taxable income.4. The contractor should notify the BIRCommissionerat the beginningof the depreciationperiod as to which depreciation rate will be used. 

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    119/163

    +. D(P%(&IA#I"!

    DEPRECIAION DED$CIBLE BFNRA?EB "nd R-CSection 3#(5$(@$

    e"'ecia#le aet m%t #e

    locate in the *hili""ine.

    att.cleod.sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    120/163

    III.ITEMIZED DEDUCTIONS

    G. D(P(#I"! "+ "I and

    GAS (S and 'I!(S

    the exhaustion of natural resources li:emines, oil and gas wells due to production

    similar to depreciation allowance, thepurpose of which is to reco/er the in/ested

    capital in the property

    att.cleod.sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    121/163

    G. D(P(#I"! "+ "I and

    GAS (S and 'I!(S

    H" A%( (!#I#(D #" &AI' D(P(#I"! AS

    D(D*I"! +%"' G%"SS I!&"'(

    Persons who deri/ed income from the extractionof oil, gas and mineral for the purpose of

    reco/ering his capital.

    #he taxpayer must ac@uire economic interest in amineral land and must ha/e capital in/estment

    in the property and not mere economic

    disad/antage.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    122/163

    G. D(P(#I"! "+ "I and

    GAS (S and 'I!(S

    Re"isites o' e"ctibilit$

    0. Depletible natural resources assets li:emines, gas and oil wells.

    2. &harged off within the taxable year 

    J. Allowance for depletion is computed in

    accordance with the cost depletion method.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    123/163

    G. D(P(#I"! "+ "I and GAS (S and 'I!(S

    (A'P( with the &"S# D(P(#I"! '(#H"D

     X Mining acquired a coal property with anestimated depositof 2,000,000 tonsfor P4,200,000. It is estimated that theproperty has a salvage value of P200,000. If Baguio Mining

     was able to produce 400,000 tons, What is the amount of thedeductible depletion expense during the year?

    Cost of coal property P4,200,000Less: Salvage value 200,000Depletion base P4,000,000Divided by estimated tons to be extracted 2,000,000Depletion per ton P 2Multiplied by number of tons extracted during the

    year

      400,000

    Depletion expense during the year P 800,000

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    124/163

    G. D(P(#I"! "+ "I and

    GAS (S and 'I!(S

    In ca(e of fo'ei1n co'"o'ation(5

    depletion shall be allowed only if the miningproperty is located in the Philippines.

    att.cleod.sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    125/163

    G.D(P(#I"! "+ "I and GAS (S and 'I!(S

    (P"%A#I"! and D(-("P'(!# &"S#Section 45>/2/

    expenditures paid or incurred during the

    development stage of the mine or other natural deposits.

    att.cleod.sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    126/163

    G.D(P(#I"! "+ "I and GAS (S and 'I!(S

    (P"%A#I"! and D(-("P'(!# &"S#Section 45>/2/

    #A #%(A#'(!#

    D"#in% t&e taxable $ea#, t&e TA

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    127/163

    (P"%A#I"! and D(-("P'(!# &"S#Section 45>/2/

    #A #%(A#'(!#

    ' t&e TA

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    128/163

    (P"%A#I"! and D(-("P'(!# &"S#Section 45>/2/

    CONDTONS

    If total amount deductible for exploration anddevelopment expendituresshall not exceed 25% of the

    net income from mining operations computed withoutthe benefit of any tax incentives under existing laws.

     The actual exploration and development expendituresminus25% of thenet income from mining shall becarried forward to the succeeding years until fullydeducted.

    III

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    129/163

    III.ITEMIZED DEDUCTIONS

    H. &HA%I#A)( and "#H(% &"!#%I)*#I"!S

    It is not an "P(%A#I!G (P(!S(.

    4U+5 allowed by law, to be deducted

    from Gross Income

    att.cleod.sabado-andrada ca mba

    III

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    130/163

    III.ITEMIZED DEDUCTIONS

    H. &HA%I#A)( and "#H(% &"!#%I)*#I"!S

    Reuisites for Deducti-ilit=

    A,%e contri/ution or +ift must /e "ctu"ll&#"id durin+ t%e t"x"/le &e"r,

    3m$st state the name an# a##ress of

    organi1ation, a!!roimate #ate an# amo$nt ofthe gift, if not money, @>< of the gift an# m$st

    %e signe# %y the ta!ayer or the res!onsi%le

    officer of the cor!oration-

    att.cleod.sabado-andrada ca mba

    III

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    131/163

    III.ITEMIZED DEDUCTIONS

    H. &HA%I#A)( and "#H(% &"!#%I)*#I"!S

    ). 'ust be gi/en to the organi1ation specified by

    the #A &ode or special law.

    &. #he net income of the institution must notinure to the benefit of any member or

    indi/idual.

    Reuisites for Deducti-ilit=

    att.cleod.sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    132/163

    H. &HA%I#A)( and "#H(% &"!#%I)*#I"!S

     As p#o!ie b$ t&e Tax Coe, contributions or donations

    made to the following are D(D*I)( I! +*.

    0.Donations to the 1o>e'nment o' "olitical

    %#i>iion incl%in1 f%lly o,ne 1o>e'nmentco'"o'ation  to be used exclusi/ely in underta:ing

    P%I"%I#$ AI-I#I(S I! e"cation, &ealt&, $o"t& an

    spo#ts e!elopment, &"man settlement, science an

    c"lt"#e, economic e!elopment.

    2. Donations to inte'national o'1ani?ation o'

    fo'ei1n intit%tion in compliance with agreements

    or treaties.

    H &HA%I#A)( d "#H(% &"!#%I)*#I"!S

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    133/163

    H. &HA%I#A)( and "#H(% &"!#%I)*#I"!S

     As p#o!ie b$ t&e Tax Coe, contributions or donationsmade to the following are D(D*I)( I! +*.

    J. Donations to accredited non

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    134/163

    H. &HA%I#A)( and "#H(% &"!#%I)*#I"!S

     As p#o!ie b$ Special 7a+ , contributions or donationsmade to the following are AS" D(D*I)( I! +*.

    0. Integrated )ar of the Philippines )P P '7&3& (+()-

    2.De/elopment Academy of the Philippines '7&3& /)?-J.Agricultural Department of Southeast Asian +isheries

    De/elopment &enter '7&3& /B/-

    5. !ational Social Action &ouncil '7&3& /B.-

    8. #as: +orce on Human Settlement

    K. !ational 'useum, ibrary N Archi/es '7&3& **-

    M. Intramuros Administration '7&3& (;(;-

    . ungsod ng abataan '7&3& (;*(-

    H &HA%I#A)( d "#H(% &"!#%I)*#I"!S

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    135/163

    H. &HA%I#A)( and "#H(% &"!#%I)*#I"!S

    Cont#ib"tion s"bects to 7imitation ;

    are not deducti-le in full as specified by the law or such

    deduction has not met the re@uisites to be deducted in full.

    &orporate< !6 of the !et Income before charitablecontributions or the A*A &"!#%I)*#I"! whiche/er is

    lower 

    Indi/idual #axpayer< ;"6 of the net Income before&haritable contributions or the A*A &ontribution

    whiche/er is "(%.

    III

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    136/163

    III.ITEMIZED DEDUCTIONS

    I. %(S(A%&H and D(-("P'(!#

    &osts incurred by the taxpayer durinB the taxa-le

    ear in connection ,ith his trade7 -usiness or

    profession for the following;

    0.impro/ements of processes and formulasC

    0.de/elopment of impro/ed or new products.

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    137/163

    I. %(S(A%&H and D(-("P'(!#

    #A #%(A#'(!#

    Ordin"r& "ndNecess"r&

    Ex#enseDED!CT0R#1 "R#SS

    INC#1E

    DE-ERREDEXPENSES

    CHAR"E T#CAPITAL

    ACC#!NT

     Allowed as deduction rata-l distri-uted for aperiod of not less than @" months beginning

    with the month in which the taxpayer +I%S#

    %(AIO(S benefits from such expenditure.

    att cleod sabado-andrada ca mba

    III

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    138/163

    III.ITEMIZED DEDUCTIONS

    . P(!SI"! #%*S#S

    fund intended to pro/ide retirement

    benefits to the employees.

    att cleod sabado-andrada ca mba

    P(!SI"! #%*S#S

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    139/163

    . P(!SI"! #%*S#S

    Re2%iite fo' e%cti#ility8

    0. (mployer must ha/e established a pension or

    retirement plan for the payment of reasonable

    pension to its employees and appro/ed by the )I%C2. Pension plan is reasonable and actuarially sound.

    J. It must be funded by the employer 

    5. Amount contributed by the employer must no longer

    be subEect to control of the employer 

    att cleod sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    140/163

    Section 35 of the NIRC

    S*)S#I#*#(S +"% #H( DISA"A!&( "+

    +A'I$, I-I!G and P(%S"!A (P(!S(S

    KindsBASIC PERSONAL EXEMPION

    ADDIIONAL PERSONAL EXEMPIONatt cleod sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    141/163

    P(%S"!A (('P#I"!

    I.

    A IC

    *ER NAL

    E6EM*+IN

    II.

    A!!I+INAL

    *ER NAL

    E6EM*+IN

    *5

    whether taxpayer ismarried, head of

    the family or single.(R.A. !"#$

    *05

    I! ADDI#I"! to the basic

    personal exemption for each

    @ualified dependent children not

    exceeding four 354.(R.A. !"#$

    att cleod sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    142/163

    P(%S"!A (('P#I"! 3P(4

    #APA$(%S A"(D

    for P(%S"!A (('P#I"!

    #APA$(%S !"# A"(D

    +"% P(%S"!A (('P#I"!

    0.%&2.!%&

    J.%A

    5.(states and #rusts

    8.!%AJ.&orporations5.Partnerships

    att cleod sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    143/163

    P(%S"!A (('P#I"! 3P(4

    PRINCIPLE O- RECIPROCIFSection 831D6

    means that "R#&TB shall be allowed a personal exemption

    only if the income tax law in his country "rantspersonal exemptions to the citi&ens and residents ofthe 'hilippines, sub*ect to the followin limitations+

    )The personal exemption does not include additionalexemption ( and)The amount of exemption shall in no case exceed   thepersonal exemption "ranted by our law to citi&ens orresidents of the 'hilippines.

    att cleod sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    144/163

    P(%S"!A (('P#I"! 3P(4

    PRINCIPLE O- RECIPROCIFSection 831D6

    NRA&E+ Those who have stayed within thePhilippinesfor more than 180 days duringthe taxable year  shall be deemed

    nonresident aliens doing business in thePhilippines.

    att cleod sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    145/163

    'r. &orte1 is non

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    146/163

    P(%S"!A (('P#I"! 3P(4

    #APA$(%S (!#I#(D #" ADDI#I"!A (('P#I"!S

    0.%&

    2.!%&

    J.%A if @ualified children are 7N>

    @T; ;= N T;E 9;799NES 

      If chil#ren are living a%roa#, RA is not

    entitle# to a##itional eem!tions&

    att cleod sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    147/163

    P(%S"!A (('P#I"! 3P(4

    RE@UISI+ES fo' A!!I+INAL E6EM*+INS

    DEPENDENT 1!ST ;E*

    0," t"x#"&ers c%ild5 !%et%er le+itim"te5ille+itim"te or le+"ll& "do#ted7

    2, c%ieJ& de#endin+ for su##ort on t%et"x#"&er7

    8, li(in+ !it% t%e t"x#"&er7

    att cleod sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    148/163

    P(%S"!A (('P#I"! 3P(4

    RE@UISI+ES fo' A!!I+INAL E6EM*+INS

    DEPENDENT 1!ST ;E*

    9, not m"rried7 not +"infull& em#lo&ed5 "nd not moret%"n 20 &e"rs old, (Sec% 35(B)$ 1*RC)

    The law allows the continuous additional exemption even if

    the dependent child is more than 21 years old ( with theprovision statin ,or if such dependent, re"ardless ofa"e, is incapable of self$support because of mental orphysical defect.) -Sec. /B( par.0( "'R!1 

    att cleod sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    149/163

    P(%S"!A (('P#I"! 3P(4

    RULES IN CLAIMIN9

    A!!I+INAL E6EM*+INS

    If onl one spouse

    is ,orinB,

    said spouse may

    claim

     Additional(xemption.

    If 4)% spouses are ,orinB,

    only one can claim the additionalexemption.

    >ene#al R"le Husband is the proper

    claimant.

    Exemption ife can claim if;

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    150/163

    &harlie, a widower, has two sons by his pre/iousmarriage, &harlie li/es with ane who is legally

    married to 'ario, #hey ha/e a child named ill. #he

    children are all minors and not gainfully employed.

    0. How much personal exemption can &harlieclaimF (xplain.

    2.How much additional exemption can &harlie

    claimF (xplain.

     200 BAR Examination

    att cleod sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    151/163

    P(%S"!A (('P#I"! 3P(4

    @UALIFIE! !E*EN!EN+S +:ER +:AN C:IL!REN

     A. PA%(!#S

    0. incapable of self support

    2. taxpayer should pro/ide the chief support.

    ). )%"#H(%S=SIS#(%S

    0. should not be more than 20 years old

    2. should not be gainfully employedJ. regardless of age, if brother=sister is incapable of self 

      support due to mental or physical defect

    5. taxpayer pro/ided for the chief support.

    att cleod sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    152/163

    P(%S"!A (('P#I"! 3P(4

    @UALIFIE! !E*EN!EN+S +:ER +:AN C:IL!REN

    &. S(!I"% &I#IO(!

    0. resident of the Philippines2. at least K6 years old

    J. retired from either go/ernment or pri/ate ser/ice

    2. has income of !"# '"%( #HA! PK6,666 per year 

    which will be re/iewed by !(DA e/ery J years.

    att cleod sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    153/163

    P(%S"!A (('P#I"! 3P(4

    @UALIFIE! !E*EN!EN+S +:ER +:AN C:IL!REN

    #axpayer or benefactor of senior citi1en shall beentitled only to the )ASI& P(S"!A (('P#I"! of

    P86,666.

    *e shall not be entitled to claim the+ITION+ --/'TION O0 '2, forsupportin" hisher parents, brothersister orsenior citi&en

    att cleod sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    154/163

    &HA!G( "+ S#A#*S S*''A%$

    Individual )axpaer Individual )axpaer  ExemptionExemption

    Change of Status:

    1.Married

    2.Died3.Widowed with 1 qualified dependent child

    4.Widowed with qualified dependentnothis

    child

    5.Widowed without dependents

    6.Legally separated with 1 qualified

    dependent child

    7.Legally separated with qualified dependent

    nothis child

    8Legallyseparatedwithoutdependents

     This year

    P50,000

    P50,000P75,000

    P50,000

    P50,000

    P75,000

    P50,000

    P50,000

    P50000

    Next year

    P50,000

    P75,000

    P50,000

    P50,000

    P75,000

    P50,000

    P50,000

    P50000att cleod sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    155/163

    &HA!G( "+ S#A#*S S*''A%$

    Additional ExemptionAdditional Exemption

    Change of Status:

    1.Born

    2.Reaches 21 years old – normal child

    3.Reaches 21 years old – abnormal child and

    incapable to support himself4.Marries

    5.Gainfully employed

    6.Dies

     This year

    P25,000

    P25,000

    P25,000P25,000

    P25,000

    P25,000

    Next year

    P25,000

    P25,000

    DE*E'DE') /%I&DRE'DE*E'DE') /%I&DRE'

    (aximum of 5our$(aximum of 5our$

    att cleod sabado-andrada ca mba

    %A' got married to ISA las anuary 266J "n

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    156/163

    %A' got married to ISA las anuary 266J. "n

    !o/ember 26, 266J, ISA ga/e birth to twins.

    *nfortunately, howe/er, ISA died in the course of

    her deli/ery. Due to complications, one of the twins

    also died on December 08, 266J.

    In preparing his Income #ax %feturn 3I#%4 for the

    year 266J, what should %A' indicate in the I#% as

    his ci/il statusF 3a4 single 3b4 married Head of the

    +amily 3d4 widower 3e4 none of the abo/e. hyF%easons.

     2005 BAR Examination

    att cleod sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    157/163

    !e"en)ent means a legitimate, illegitimateor legally adopted child chiefly dependent

    upon and living with the taxpayer if suchdependent met the criteria provided underSec. 35(b) of NIRC.

    att cleod sabado-andrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    158/163

    hea of family means an unmarried or legallyseparated man or woman with one or both parents, or

     with one or more brothers or sisters, or with one ormore legitimate, recognized, natural, or legallyadopted children, living with and dependent upon himor her for theirchief support; where such brothers,sisters or children are not more than twenty-one yearsof age, unmarried, and not gainfully employed; or

     where such brothers, sisters or children, regardless of

    age, are incapable of self-support because of mentalor physical defect.(Sec. 35A par.3, NIRC)

    att cleod sabadoandrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    159/163

     Arnold who is single, cohabits with -ilma, who is

    legally married to Oachary. Arnold and -ilma ha/esix minor children who li/ed and depend upon

     Arnold for their chief support. #he children are not

    married and not gainfully employed.

    0.+or income tax purposes, may Arnold beconsidered as >head of the family?F

    2.Is Arnold entitled to deduct from his gross income

    an additional exemption for each of his legitimate

    childF

     1(() BAR Examination

    att cleod sabadoandrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    160/163

    li>in1 ,ith may be construed that thetaxpayer and his dependentsreside under

    one roof, or do not necessarily resideunder one roof with consideration on thecharacter of the separation.

    att cleod sabadoandrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    161/163

    9ainf%lly em"loye) means that thedependent is engaged in an employment, work

    or trade that will remove him from the statusof chief support from the taxpayer.

    att cleod sabadoandrada ca mba

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    162/163

    Chief (%""o't refers to the principal or mainsupport whether money or in kind extended

    continuously to the dependent, such that if withdrawn, the dependent will have a destitutelife.

    att cleod sabadoandrada ca mba

    'ar got married in 0LL6 A wee: before their marriage oy

  • 8/18/2019 Allowableasdasdasdasdasdadeductions Personal Exemptions

    163/163

    'ar got married in 0LL6. A wee: before their marriage, oy

    recei/ed, by way of donation, a condominium unit worthPM86,666 from her parents. After marriage, some

    reno/ations were made at a cost of P086,666. #he spouses

    were both employed in 0LL0 by the same company. "n J6

    December 0LL2, their first child was born, and a second

    child was born on 6M !o/ember 0LLJ. In 0LL5, they sold thecondominium unit and bought a new unit.

    *nder the foregoing facts, what were the e/ents in the life of

    the spouses that had income tax incidencesF


Recommended