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Yanilla
BS Accountancy III-C
TAX01
MWF
10:30-11:30
Chapter 13-A
(Discussion Questions)
4. TAXES
Taxes paid or incurred within the taxable year in connection with the taxpayers, trade or
business, or exercise of profession shall be allowed as deduction, except:
I. Philippine income taxes except fringe benefit tax. Final income tax Capital gain tax
Regular income tax
II. Foreign income tax, if claimed as tax credit.
III. Estate tax and donor's tax.
IV. Special Assessment
V. Other non-deductible taxes:
a. Business taxes, in particular, the value added tax (VAT)
b. Surcharges or penalties on delinquent taxes.
5. The foreign tax credit tax credit with one foreign country shall be the lower of the total of the
tax credit allowable per country and the world income tax credit limit which can be computed as
follows:
11. Based on the taxable income derived from trade, business or profession (i.e. Net income)
before the deduction of any contributions. a. 10% for individuals b. 5% for corporations
12. The rules in computing the deductible pension expense one as follow:
I. The contribution to the fund is first attributed to current service cost. The funding of
current service cost is deductible in full.
II. The excess funding is attributed to any unfunded past service cost. The funding of past
service cost is amortized over 10 years regardless of the actual vesting period of covered
employees.
III. Overfunding of the fund is prepaid pension expense deductible in the future as funding
of future current service cost.
2. The Special expenses under the NIRC and special laws are as follows :
I. Income distribution from a taxable estate or trust.
II. Transfer to reserve fund and payments to policies and annuity contracts of insurance
companies.
III. Dividend distribution of a Real Estate Investment Trust (REIT) under RA 9856.
IV. Transfer to reserves funds of taxable cooperatives.
V. Discounts to senior citizens under RA 9257.
VI. Discounts to persons with disability under RA 9442.
4. Net operating loss carry-over (NOLCO) can be calculated through the following formula:
Gross income subject to regular tax --------------------
Less:
Total deductions excluding NOLCO from prior years
and deduction incentives under special laws. ---------------------
Net operating loss carry-over --------------------
A change of at least 75% of either the paid up capital nominal value of the outstanding shares of
a corporation is deemed a substantial change in business ownership.
7. NOLCO is not one of the assets of the absorbed corporation that can be transferred and
absorbed by the surviving corporation, noting that it is privilege or deduction that can be availed
only by the absorbed corporation.
1. Optional Standard Deduction (OSD) is in lieu of the itemized deductions including NOLCO
allowable under the NIRC and special laws. Under this, the allowable deduction of the taxpayer
is simply presumed as a percentage of gross sales or receipt for individuals and gross income for
corporations. Accordingly, it doesn't relieve the taxpayer of the responsibility to deduct
withholding tax on certain income payments as required by the NIRC.
2. OSD is a proxy for itemized deductions, all taxpayers who are subject to tax on taxable
net income can claim deductions, except the following:
Non-resident alien engaged in trade or business (NRA-ETB)
Taxpayers mandated to use itemized deductions.
3. Operating income is simply the amount of revenue left over after accounting for all the
expenses necessary to keep the business running. Among other things, this includes expenses for
rent, cost of goods, utilities, freight and wages. While it includes depreciation, operating income
does not account for interest payments, investment income, taxes or income from secondary
operations. Operating income is simply the revenue net of the cost of keeping the lights on while
in the non-operating income are gains from dealings in properties, distribution from a general
professional partnership exempt co-ownership and taxable estates or trusts, casual active income
and passive income.
4. The individual OSD is based on gross receipts or gross sales, it is deemed to replace all items
of deductions against gross receipts or gross sales in computing net income and the corporate
OSD is based on gross income, it is deemed to replace all items of deductions from gross income
in computing net income.
5. A general professional partnership (GPP) is not a taxable entity. It is merely viewed as a pass
through entity where income is ultimately taxed to the partners. Each partner shall report as
gross income his distributive share actually or constructively received, in the net income of the
GDP.