Allowableasdasdasdasdasdadeductions Personal Exemptions

Distinguish a Exclusion from
Gross Income from Deductions

from Gross Income. Give an
example of each.
2001 BAR Examination
atty. cleo d. sabado-andrada, cpa, mba
Deductions from
Gross Income
Section 34
Something paid or
incurred in doing
business or trade
Pertains to the
computation of
ordinary taxable
income.
Exclusions from
Gross Income
Section 32(B)
Should not form part

of
gross
income
because excluded by
law,
by
the
constitution or does
not fall within the
definition of income.
Pertains to the
determination of
Gross Income.
Section
Section 34
34 of
of the
the NIRC
NIRC
SHALL NOT APPLY TO

GROSS COMPENSATION INCOME
EXCEPT Section 34 (M).
CAN BE DEDUCTED from

Gross Compensation Income
Section 35 of the NIRC

SUBSTITUTES FOR THE DISALLOWANCE OF
FAMILY, LIVING and PERSONAL EXPENSES
Kinds
BASIC PERSONAL EXEMPTION
ADDITIONAL PERSONAL EXEMPTION
Allowance for
Personal Exemptions
Deductions from
Gross Income
Section 35
Section 34
Actual business
expenses or
As to
expenses incurred AMOUNT
in the exercise of
profession
To recover the
cost of doing
business.
As to
PURPOSE
Arbitrary amounts
because it may not
be enough to cover
personal living
expenses.
To cover the family,

living and personal
expenses.
Allowance for
Personal Exemptions
Deductions from
Gross Income
Section 35
Section 34
Business
Expenses
As to
NATURE
Corporate
Taxpayers except
NRFC, it can also
As to
be claimed by
CLAIMANT
Individual
Taxpayers except
NRA-NETB.
Family, living and

personal expenses.
Individual
Taxpayers only
except NRANETB.
Deductions from
Gross Income
Section 34
1. Itemized
Deductions
2. Optional
Deductions
As to
(OSD) of 40% of KINDS
Gross Income or
Receipt.
Allowance for
Personal Exemptions
Section 35
1. Basic Persona
Exemption
2. Additional
Personal
Exemption.
OSD is applicable to
individual and
corporate
taxpayers (Sec. 3
R.A. 9504)
Section
Section 34
34 of
of the
the NIRC
NIRC
SHALL NOT APPLY TO

GROSS COMPENSATION INCOME
EXCEPT Section 34 (M).
CAN BE DEDUCTED from

Gross Compensation Income
These are amounts allowed by law to

reduce the gross income to taxable income.
BASIC PRINCIPLES
NON RESIDENT ALIEN NOT
ENGAGED IN TRADE OR BUSINESS
and NON RESIDENT FOREIGN
CORPORATION are not allowed to
claim deductions
The taxpayer must point
to
some
specific
provisions
of
the
statute/law authorizing
the deduction. cpa, mba
atty. cleo d. sabado-andrada,
BASIC PRINCIPLES
The taxpayer must prove that
he is entitled to the
deduction authorized or
allowed.
If the taxpayer fails to deduct certain
expenses for the taxable year, he cannot
deduct them from the income of the next or
any succeeding year
BASIC PRINCIPLES
Cohan
Rule
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 taxpayers taxable
income.
disallowance of 50% of
the taxpayers claimed
deduction is VALID.
KINDS OF ALLOWABLE DEDUCTIONS

I.
PREMIUM PAYMENTS ON HEALTH
and/or HOSPITALIZATION INSURANCE
(PHHI) Section 34(M)
premiums paid during the taxable year for

health and/or hospitalization insurance
taken by him on himself, including his
family.
applicable only to individual
I.
(PHHI)
CONDITIONS BEFORE PHHI SHALL BE

ALLOWED AS DEDUCTION FROM GROSS
INCOME.
1. That the family had a gross income of not

more than two
hundred fifty thousand
pesos (P250,000.00) for the taxable year.
PARENTS and the
CHILDREN who are not
NUCLEAR
yet taxpayers their
FAMILY
income
notwithstanding.
atty. cleo d. sabado-andrada, cpa,
mba
I.
(PHHI)

INCOME.
2. In case of married persons, only the

spouse claiming the additional exemptions
for dependents shall be entitled to the
deduction;
I.
(PHHI)

INCOME.
3. The deduction shall not exceed P2,400

for the family, or P200 a month.

II.
OPTIONAL STANDARD DEDUCTION
(OSD) Section 34(L)
OSD is a deduction from gross income allowed

to be taken in lieu of the itemized deductions.
Applicable to INDIVIDUAL (but not to
non-resident alien)
applicable also to CORPORATION as
allowed by Sec. 3 of R.A. 9504.
REVENUE REGULATIONS
NO. 16-2008
Implementing the Provisions of Section 34(L)
of the Tax Code of 1997, As Amended by
Section 3 Republic Act No. 9504, Dealing on
the Optional Standard Deduction (OSD)
Allowed to Individuals and Corporations in
Computing their Taxable Income
PERSONS COVERED:
1. Individuals:
i. Resident Citizen
ii. Non-resident citizen
iii. Resident Alien
iv. Taxable estates and trusts
2. Corporations:
i. Domestic corporation
ii. Resident foreign corporation
II.
OPTIONAL STANDARD DEDUCTION
(OSD)
OSD
RATE
40%
Of Gross Sales/Gross
Receipts
INDIVIDUAL TAXPAYERS,
40%
Of Gross Income
CORPORATE
TAXPAYERS
other than NRA

It should be emphasized that the

cost of sales in case of individual
seller of goods, or the cost of services
in the case of individual seller of
services, are not allowed to be
deducted
for
purposes
of
determining the basis of the OSD
pursuant to this Section inasmuch
as the law (RA 9504) is specific as to
the basis thereof which states that
for individuals, the basis of the 40%
OSD shall be the gross sales or
In the case of sellers of services, the

term gross income means the gross
receipts less sales returns, allowances,
discounts and cost of services. Cost of
services means all direct costs and
expenses necessarily incurred to
provide the services required by the
customers and clients including
salaries and employees benefits of
personnel, consultants and specialists
directly rendering the service,
SEC. 5. ILLUSTRATIVE EXAMPLES IN

DETERMINING THE BASIS OF THE 40%
OSD
FOR
INDIVIDUALS
AND
CORPORATIONS.
Suppose a retailer of goods, whose
accounting method is under the accrual
basis, has a gross sales of P1,000,000.00
with a cost of sales amounting to P800,00.
if Individual
Gross Sales
If Corporation
P1,000,000
P1,000,000
Less: Cost of Goods Sold

Basis of the OSD
P1,000,000
X OSD Rate (maximum)
OSD Amount
800,000
P
.40
P 400,000
===========
200,000
.40
P
80,000
===========
If Individual If Corporation
Gross Sales
P1,000,000
P1,000,000
Less: Cost of Sales

Gross Sales/Gross
200,000
P 600,000
P
===========
===========
120,000
Less: OSD (maximum)
Net Income
800,000
P1,000,000
400,000
80,000
REVENUE REGULATIONS
NO. 2-2010
Amendment to Sections 6 and 7
of Revenue Regulations No. 162008 with Respect to the
Determination of the Optional
Standard Deduction (OSD) of
General Professional Partnerships
(GPPs) and the Partners Thereof,
As Well as the Manner and Period
for
Making
the
Election
to
Claim
If the GPP availed of the itemized deduction in

computing its net income, the partners may still
claim itemized deductions from said share,
provided, that, in claiming itemized deductions,
the partner is precluded from claiming the same
expenses already claimed by the GPP. If the
GPP claimed itemized deductions the partners
comprising it can only claim itemized
deductions which are in the nature of ordinary
and necessary expenses for the practice of
profession which were not claimed by the GPP
in computing its ne income or distributable net
income during the year.
Examples
of
these
are
representation expenses incurred by
the partner where the covering invoice
of receipt is issued in his name;
travelling expenses while away from
hone, which were not liquidated by the
partnership; depreciation of a car used
in the practice of profession where said
car is registered in the name of the
partner and similar expenses.
Hence, if the GPP availed of itemized

deductions, the partners are not allowed
to claim the OSD from their share in the
net income because the OSD is a proxy
for all the items of deductions allowed in
arriving at taxable income.
If the GPP avails of OSD in computing its
net income, the partners comprising it can
no longer claim further deduction from
their share in the said net income.
If the partner also derives other gross

income from trade, business or practice of
profession apart and distinct from his share
in the net income of the GPP, the
deduction that he can claim from his other
gross income would follow the same
deduction availed of from his partnership
income as explained in the foregoing rules.
Provided, however, that if the GPP opts for
the OSD, the individual partner may still
claim 40% of its gross income from trade,
business or practice of profession but not
to include his share from the net
income of the GPP.
II.
OPTIONAL STANDARD DEDUCTION (OSD)
the taxpayer must signifies in his return his

intention to elect Optional Standard Deduction,
OTHERWISE, he shall be considered as having
availed of the Itemized Deductions.
The election of OSD is irrevocable for

the taxable year for which the choice is
made.
The election to claim either the OSD or the

itemized deduction for the taxable year must
be signified by checking the appropriate box
in the income tax return filed for the first
quarter of the taxable year adopted by the
taxpayer. Once the election is made, the
same type of deduction must be consistently
applied for all the succeeding quarterly
returns and in the final income tax return for
the taxable year.
Any taxpayer who is
required but fails to file the quarterly income
tax return for the first quarter shall be
considered as having availed of the itemized
deductions option for the taxable year.
II.
OPTIONAL STANDARD DEDUCTION (OSD)
SHALL NOT APPLY TO
GROSS COMPENSATION
INCOME ARISING OUT OF
EMPLOYER-EMPLOYEE
RELATIONSHIP.

III.
ITEMIZED DEDUCTIONS
Section 34(A to J)
These are expenses related to trade or

business or to the practice of profession
applicable to BOTH individual and

corporate taxpayers
III.
ITEMIZED DEDUCTIONS
KINDS OF ITEMIZED
DEDUCTION
(by statutory classification)
A.Business Expenses
B.Interest
C.Taxes
D.Losses
E.Bad Debts
III.
ITEMIZED DEDUCTIONS
KINDS OF ITEMIZED
DEDUCTION
(by statutory classification)
F. Depreciation
G. Depletion
H. Charitable and Other Contributions
I. Research and Development Expenditure
J. Pension Trust Contribution
III.
ITEMIZED DEDUCTIONS
A.Business Expenses
The expenses must be ORDINARY and NECESSARY
when it is normal or
common or usual in
relation to the business
of the taxpayer and the
surrounding
circumstances.
where it is appropriate
and helpful in the
development of the
taxpayers business,
meaning it is
intended to realize
a profit or to
III.
ITEMIZED DEDUCTIONS
A.Business Expenses
The expenses must be incurred in trade or business
carried on by the taxpayer.

not incurred in the trade
or business of another.
The expenses must be substantiated by proof

Receipts are the best proof BUT the
burden of proof lies upon the taxpayer
to establish the relationship of the
expenses and the business.
III.
ITEMIZED DEDUCTIONS
A.Business Expenses
The expenses must be reasonable
The expenses must not be against public policy,
public moral or law.
If the expense is subject to withholding tax,
proof of payment to BIR must be shown
MC Garcia, a contractor who won the

bid for the construction of a public
highway, claims as expenses,
facilitation fees which according to
him is standard operating procedure
in transactions with the government,
Are these expenses allowable as
deduction from gross income?
III.
ITEMIZED DEDUCTIONS
A.Business Expenses
The expenses must be paid or incurred during the
taxable year.
Two (2) Accounting Methods
in the recognition of expenses
CASH METHOD
Recognized when paid
so, expenses will be
deducted in the year in
which they are paid.
ACCRUAL BASIS
METHOD
Recognized when incurred so,
expenses will be deducted in
the year in which they accrue.

CASH METHOD
Recognized when
paid so, expenses
will be deducted in
the year in which
they are paid.
Cash basis tax payers include

income when it is received,
and claim deductions when
expenses are paid. A cash
basis taxpayer can look to the
doctrine of constructive receipt
and
the
doctrine of cash equivalence to
help determine when income is
received.

Accrual
basis
taxpayers
include items when they
are earned and
claim
deductions when expenses
are incurred. An accrual
basis taxpayer looks to the
all-events test and earlier-of
test to determine when
income is earned.
ACCRUAL
BASIS
METHOD
Recognized when
incurred so,
expenses will be
deducted in the year
in which they accrue.

Under the all-events test, an

accrual
basis
taxpayer
generally
must
include
income "for the taxable
year when all the events
have occurred that fix the
right to receive income and
the amount of the income
can be determined with
reasonable accuracy."
ACCRUAL
BASIS
METHOD
Recognized when
incurred so,
expenses will be

Under the "earlier-of test",

an accrual basis taxpayer
receives income when:
(1) the required performance
occurs,
(2) payment therefore is due,
or;
(3) payment therefore is
made, whichever happens
earliest.
ACCRUAL
BASIS
METHOD
Recognized when
incurred so,
expenses will be
What is the all events test?

Explain briefly.
Question II (A) 2010 BAR Examination
III.
ITEMIZED DEDUCTIONS
KINDS of BUSINESS EXPENSES

1. Compensation for Personal
Services
Requisites:
- Personal services actually rendered

- Compensation is for such services rendered.
- Reasonable
Salary expenses are allowed as deductions from gross
business income only if the corresponding withholding
tax has been deducted and remitted to the BIR
III.
ITEMIZED DEDUCTIONS

2. Travelling Expenses
(include transportation, meals and lodging
expenses
Requisites:
- Paid or incurred while away from home
- Paid or incurred in the conduct of trade or
business
- Reasonable and necessary necessary
III.
ITEMIZED DEDUCTIONS

3. Representation and Entertainment
Expenses
Requisites:
- Paid or incurred in the conduct of trade or
business
- Paid or incurred during the taxable year
- Not contrary to law, morals and public policy
--Subject
Reasonable
to theand
rulenecessary
of substantiation
(there must be records as to the amount, date and place of expense,
purpose or relationship of the expense to the business.)
III.
ITEMIZED DEDUCTIONS

4. Advertising and Promotional Expenses
Requisites:
- Must be substantiated.
- All payments for the purchase of promotional giveaways, contest prizes or similar material must
be properly receipted.
-All payments for services such as radio and TV time,
print ads, advertising expertise must be subjected to
withholding tax.
III.
ITEMIZED DEDUCTIONS

5. Rent Expense
For business property
at least P500
5%
Non-business/residential property
- at least P10,000
5%
III.
ITEMIZED DEDUCTIONS

6. Cost of material and supplies
deductible only to the amount actually
consumed or used in operation.
III.
ITEMIZED DEDUCTIONS

7. Repairs
Rules on deductibility:
Incidental or ordinary repairs are deductible
keeps the asset in its ordinary working
condition
Extraordinary repairs are not deductible
expenses incurred that will add material value
to
the property or prolong its life. They are
capital expenditures.
III.
ITEMIZED DEDUCTIONS
GENERAL RULE: CAPITAL EXPENDITURES

ARE NOT DEDUCTIBLE.
EXEMPTION:
CAPITAL EXPENDITURES
ALLOWABLE TO
PRIVATE
EDUCATIONAL INSTITUTIONS
Section 34(A)(2)
OPTIONS:
1. Deduct immediately as expenditures
2. Deduct as allowances for depreciation
III.
ITEMIZED DEDUCTIONS
B. Interest Expenses
amount which one has contracted to pay for

the use of borrowed money or amount of
compensation paid for the use of money or
forbearance from such use.
III.
ITEMIZED DEDUCTIONS
There must be an indebtedness.
no indebtedness, no deduction
interest or penalties for crime

committed are NOT DEDUCTIBLE.
III.
ITEMIZED DEDUCTIONS
Indebtedness must be that of the taxpayer.
For corporation,
the loan must be obtained in its
corporate capacity, using corporate
assets as security.
III.
ITEMIZED DEDUCTIONS
The debt must have been incurred in
connection with taxpayers trade or business.
The interest must have been stipulated in writing.
III.
ITEMIZED DEDUCTIONS
Interest must be paid or accrued
within the taxable year.
Cash Basis deductible in the year it is actually
paid.
Accrual Basis- deductible in the year it is accrued
even if not actually paid.
INTEREST EXPENSE DEDUCTIBLE
WITH LIMITATION (Section 34(B)(1)
Situation: Taxpayer has interest income subjected to 20%

final tax and at the same time incurred during
interest expense during the year
For INDIVIDUAL,
the allowable deduction for
interest expense shall be
reduced by an amount equal
to 38% of interest income
Normal Tax Rate

Less: Final Tax on
Interest Income
Tax Difference
Divided by
Tax Differential Rate
32%
20%
12%
32%
38%
X record shows the
following data:
Interest Expense on
business loan
P25,000
Interest Income
on Time Deposit P10,000
How much is the interest

expense deductible?
Actual Interest
Expense
P25,000
Less: Tax differential
on interest income
(10,000 x 38%)
P 3,800
Deductible
Interest Expense P21,200
Situation: Taxpayer has interest income subjected to 20%

final tax and at the same time incurred during
interest expense during the year
For CORPORATION,
the allowable deduction for
interest expense shall be
reduced by an amount equal
to 33% of interest income
Normal Tax Rate

Less: Final Tax on
Interest Income
Tax Difference
Divided by
Tax Differential Rate
30%
20%
10%
30%
33%
X Corporation record
shows the following data:
Interest Expense on
business loan
P50,000
Interest Income
on Time Deposit P40,000
How much is the interest

expense deductible?
Actual Interest
Expense
P50,000
Less: Tax differential
on interest income
(40,000 x 33%)
P 13,200
Deductible
Interest Expense P36,800
NON DEDUCTIBLE INTEREST EXPENSE
(Section 34(B)(2)
1. Interest paid in advance or Prepaid Interest
Section 32(B)(2)(a)
If taxpayer is reporting income on CASH

BASIS, the interest expense of a business
loan paid in advance shall be allowed as
deduction in the year that the principal
indebtedness is FULLY PAID.
(Section 34(B)(2)
1. Interest paid in advance or Prepaid Interest
Section 32(B)(2)(a)
If the indebtedness is payable in periodic

amortization, the amount of interest
expense which corresponds to the
amount of the principal amortized or paid
during the year SHALL BE ALLOWED AS
DEDUCTION IN SUCH TAXABLE YEAR.
(Section 34(B)(2)
2. Interest payment on indebtedness not business
related;
Interest payment in favor of a relative (related
debtor and creditor)
Section 32(B)(2)(b)
3. Interest paid on indebtedness to finance

petroleum explorations.
Section 32(B)(2)(c)
OPTIONAL TREATMENT OF INTEREST EXPENSE
(Section 34(B)(3)
Interest incurred by the taxpayer to
acquire property used in trade or
business or exercise of profession
TAXPAYER has TWO (2)

OPTIONS:
1.DEDUCT IT OUTRIGHT
2.TREAT IT AS CAPITAL
Explain if the following items are deductible from

gross income for income tax purposes. Disregard
who is the person claiming the expense.
1.Interest on loans used to acquire capital
equipment.
2.Depreciation of goodwill.
III.
ITEMIZED DEDUCTIONS
C. TAXES
Requisites for Deductibility of Taxes

1.It must be paid
or incurred within the
taxable year
2.It must be paid or incurred in connection
with the taxpayers profession, trade or
business
3.The tax must be imposed directly upon the
taxpayer
C. TAXES
NON DEDUCTIBLE TAXES from GROSS INCOME
1. Philippine income tax

2. Estate and donors taxes
(Sec. 83, Rev. Regs. No. 2.)
3. Foreign income tax, if claimed as a tax

credit
4. Percentage tax on stock transaction
5. Value-added tax
C. TAXES
6. Taxes not related to business, trade, or

profession
7. Other items related to tax such as:
- Special assessment tax
- Surcharges
- Compromise penalty
BUT,
IF THERE IS TAX REFUND or TAX CREDIT, SAME
SHALL BE INCLUDED AS PART OF GROSS INCOME
IN THE YEAR OF RECEIPT TO THE EXTENTOF THE
INCOME TAX BENEFIT OF SAID DEDUCTION.
TAX BENEFIT RULE
C. TAXES
TAXES DEDUCTIBLE from GROSS INCOME
1.
2.
3.
4.
5.
6.
7.
8.
9.
Documentary stamp taxes

Occupational taxes
Privilege and license taxes
Excise taxes
Import duties
Local Business taxes
Automobile registration fees
Community tax
Municipal tax
C. TAXES
TAXES DEDUCTIBLE from GROSS INCOME
FOR, NRA-ETB and

RFC :
ALLOWED ONLY IF TAXES ARE
CONNECTED WITH INCOME FROM
SOURCES WITHIN THE PHILIPPINES.
Section 34(C)(2)
III.
ITEMIZED DEDUCTIONS
D. LOSSES
reductions on resources due

to unintended destruction
or
deprivation of things not in
the ordinary course of business.
D. LOSSES
CAPITAL GAIN
CAPITAL LOSS
Section 39(A)(2)(3)
of the NIRC
ORDINARY GAIN
ORDINARY LOSS
D. LOSSES
Requisites for Deductibility of Ordinary
Losses
1.The loss must be actually sustained in a
closed and completed transaction;
2. The loss must be that of the taxpayer and

incurred in trade, profession or business;
3. The loss must not be compensated by
insurance or other forms of indemnity;
4. The loss must be reported to the BIR from 30
days to 90 days from the date of its
discovery.
D. LOSSES
NON DEDUCTIBLE LOSSES from GROSS INCOME
(not allowed by law as deductions)
1. Loss on voluntary removal of building on land

purchased 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);
Can be allowed as deductions to the extent of
gambling wins. NOT ALLOWED AS DEDUCTION
from business income, compensation income and
gains from sale of capital assets.
D. LOSSES
3.
Capital loss not covered by capital gains

(Sec. 34[D][4], NIRC);
Capital Loss
deductible to the
extent of Capital
Gain, can not
be deductible
from Ordinary
Gain
To preserve Section 34(A)(1) of the

NIRC that only ORDINARY and
NECESSARY EXPENSES will be
allowed to be deducted from the Gross
Income.
Capital Loss is not a business connected
expense, not ordinary expense.
D. LOSSES
4. Losses from exchanges of property

in corporate readjustments
(Sec. 40, NIRC);
Section 40(C) of the NIRC SALE/EXCHANGE OF PROPERTY
No GAIN, No LOSS Recognized (Gain not

taxable, Loss not deductible
With regard to merger and consolidation

(Section 40(C)(2)a,b,c
Exchange of property for
stock
TRANSACTIONS
SOLELY IN KIND
Exchange of stock for stock
NO CASH IS GIVEN,
THEREFORE, TAX
EXEMPT
Exchange of securities for

stock or securities
GAIN is RECOGNIZED
TRANSACTION
S NOT
SOLELY IN
KIND
BUT LOSS is
NOT
DEDUCTIBLE.
D. LOSSES
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).
OTHER TRANSACTIONS WHEREIN THE
LOSS IS
NOT DEDUCTIBLE
GAIN IS RECOGNIZED AND
1. Illegal Transactions
2. Transactions between Related Taxpayers. Section 36(B), NIRC
Strangers, Section 99(B) of the NIRC
OTHER TRANSACTIONS WHEREIN THE

GAIN IS RECOGNIZED AND LOSS IS NOT
DEDUCTIBLE
3. Wash Sale, Section 38 of the NIRC
A sale or disposition of stock or securities, by a
seller who is not a dealer in securities or shares or
stocks, where substantially identical securities are
acquired or purchased within a 61 day period,
beginning 30 days before the sale and ending 30
days after the sale.
Even if sold by a dealer in securities if the
transaction was not made in the ordinary course of
the business of such dealer, there is WASH SALE.
D. LOSSES
7. Losses from exchanges of property where

the property received is not substantially
different from the property disposed of
(Sec. 40, NIRC);
8. Losses not incurred in trade, profession or

business or in any transaction entered into
for profit
(Sec. 36 [A], NIRC)
Give the requisites for deductibility of a loss.
D. LOSSES
DEDUCTIBLE LOSSES from GROSS INCOME
(provided the requisites for deductibility are complied with)
Requisites for Deductibility of Ordinary
Losses
1.The loss must be actually sustained in a

closed and completed transaction;
2. The loss must be that of the taxpayer and
incurred in trade, profession or business;
3. The loss must not be compensated by
insurance or other forms of indemnity;
4. The loss must be reported to the BIR from 30
days to 90 days from the date of its
discovery.
D. LOSSES
1. Business losses such as losses incurred in
trade or
profession;
2. Casualty losses such as losses due to storms,
fires,
shipwreck or other
casualties of
property connected
with
profession,
trade
or
business;
3. Losses of business property due to theft,
robbery
or embezzlement;
4. Net Operating Loss Carry Over (NOLCO).
Section 34(D)(3)
D. LOSSES
In case of PARTIAL LOSS, what is the measure of loss?
Cost to restore property back to its normal

condition OR Book Value, WHICHEVER IS
LOWER, and then reduced by insurance
recovery or any form of indemnity.
D. LOSSES
NOT THE same as
NET OPERATING LOSS CARRY OVER

(NOLCO
Section 34(D)(3) f the NIRC
APPLICABLE TO BOTH INDIVIDUAL and
CORPORATE TAXPAYERS
NET CAPITAL LOSS CARRY OVER

(NCLCO)
Section 39(D) of the NIRC
Applies only to Individual Taxpayer and

NEVER to a Corporate Taxpayer.
D. LOSSES
(NOLCO
Section 34(D)(3) of the NIRC
the excess of allowable deductions

over gross income of the business or
enterprise for any taxable year.
Section 34(D)(3)(ii)
The net operating loss, which had not been

previously offset as deductions from gross income,
shall be carried over as a deduction from gross income
for the next three (3) consecutive taxable years
immediately following the year of such loss.
NET OPERATING LOSS CARRY OVER (NOLCO

WHO ARE ENTITLED TO CLAIM NOLCO?

Individual taxpayers engaged in trade or
business or in the exercise of his profession.
Domestic and resident
foreign corporations subject
to normal income tax.
Special Corporation subject to preferential tax rates
such as private educational institutions, hospitals,
and regional operating headquarters.
X, single, reported the following income and expenses:

Salary as a professor
Gross business income
Business deductions
2007
P180,000
200,000
350,000
2008
P190,000
250,000
200,000
2009
P200,000
300,000
340,000
2010
P210,000
400,000
380,000
2011
P210,000
600,000
400,000
Xs taxable income before personal exemption for the

said years would be:
Business deductions
Income(loss) from business
Less: Applicable NOLCO
Net business income (loss)
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
-0P210,000
P210,000
P600,000
400,000
P200,000
.
P200,000
210,000
P410,000

Business deductions
Income(loss) from business
Less: Applicable NOLCO
Net business income (loss)
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
-0P210,000
P210,000
P600,000
400,000
P200,000
.
P200,000
210,000
P410,000
the remaining P40,000 NOLCO cannot be deducted

from the business income of the year 2011 because
the three-year reglementary period has expired.
NOLCO cannot be deducted against compensation
income (employer-employee relationship).

(NOLCO
If a person, natural or
juridical, is enjoying
tax exemption
pursuant to the NIRC
or any special law,
NOT
ENTITLED TO
DEDUCT
NOLCO
FROM GROSS
INCOME

(NOLCO
In cases of BUSINESS
COMBINATIONS, if there
is a substantial change
in the ownership of
business.
NOT
ENTITLED TO
DEDUCT
NOLCO
FROM GROSS
INCOME
If less than 75% percent of the

paid-up capital or nominal
value of outstanding shares
retained by the same persons.

(NOLCO
In cases of BUSINESS
COMBINATIONS, if there
is NO substantial
change in the ownership
of business.
NOLCO IS
ALLOWED TO
BE
DEDUCTED
FROM GROSS
INCOME
If NOT less than 75% percent of

the paid-up capital or nominal
value of outstanding shares
retained by the same persons.

(NOLCO
FOR MINES
(other than oil and gas wells)
NOLCO incurred in any of the first 10
years of operation may be carried over as
a deduction from taxable income for the
next 5 years immediately following the
year of such loss.

FOR MINES
On December 31, 200A, X Gold Mines marked its 10

consecutive year of operation. It has an operating loss in
year 200A amounting to P30,000,000.
If X Gold Mines continues operation with the following
data, the taxable income would be:

FOR MINES
(In millions of
pesos)
Revenue
Cost of goods sold
Operating expenses
Net income (loss)
NOLCO
Taxable income
200B
200C
200D
200E
200F
200G
P 20
( 5)
( 13)
P 2
( 2)
-0-
P30
( 7)
(15)
P 8
( 8)
-0-
P24
( 6)
(15)
P 3
( 3)
-0-
P28
( 7)
(15)
P 6
( 6)
-0-
P35
(10)
(16)
P 9
( 9)
-0-
P40
(12)
(18)
P10
-0P10
Only P28M out of P30M net operating loss is covered by the 5

year period for the deductibility of NOLCO

SPECIAL/OTHER RULES ON LOSSES
A taxpayer who claims the 40% OSD shall

not simultaneously claim deduction of the
NOLCO. The three-year reglementary
period
shall
continue
to
run
notwithstanding the fact that the aforesaid
taxpayer availed of the OSD during the said
period

Domestic and resident foreign corporation

taxed during the taxable year with MCIT
cannot enjoy the benefit of NOLCO.
Nevertheless, the running of the three (3)
year period for the expiry of NOLCO is not
interrupted by the fact that such corporation
is subject to MCIT

a loss in one line of business is not

permitted as allowable deduction from gain
in another line of business, if one of the two
lines is exempted from tax.

WHO ARE NOT ENTITLED TO CLAIM NOLCO?

re
o
h
s
f
O
it
n
U
g
Bankin eign
r
o
F
d
n
a
cy
n
e
r
r
u
C
n it
U
t
i
s
Depo
Enterprise
registered with
PEZA
Enterprise registe
red with
the Board of Inve
stments
Enterprise registered
under the bases
Conversion and
Development Act of 1992
Foreign Corporations engaged in
International Shipping or air
carriage business in the
Philippines.
III.
ITEMIZED DEDUCTIONS
E. BAD DEBTS
claim that becomes worthless or uncollectible arising

from money lent or from goods sold or services
rendered.
E. BAD DEBTS
Requisites for the deductibility of Bad Debts Expense
C charged off or written off against the books of the taxpayer
U the amount written off must be uncollectible in the near
future, no slim chance of recovery collecting such an
amount.
B it must arise from business trade/profession
A ascertain to be worthless
N not arising from transactions between related taxpayers
E. BAD DEBTS
BAD DEBTS RECOVERY
Shall be included in the Gross Income in the
year of recovery to the extent of the tax benefit
of said deduction.
So, upon recovery of bad debts, it is a taxable
gain
TAX BENEFIT RULE or

RECAPTURE RULE
III.
ITEMIZED DEDUCTIONS
F. DEPRECIATION
annual reasonable allowance to reduce the useful

value of the tangible fixed assets resulting from
wear and tear and normal obsolescence
For
intangible
assets such as patents,

copyrights and franchise, the annual allowance
to reduce their useful value is called
amortization.
F. DEPRECIATION
Requisites for Deductibility:
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.
1. What is the proper allowance for depreciation of

any property used in trade or business?
2. What is the annual depreciation of
depreciable fixed asset with a cost
P100,000 and an estimated useful life of
years and salvage value of P10,000 after
useful life?
a
of
20
its
F. DEPRECIATION
METHODS OF DEPRECIATION
Section 34(F)(2)
1.
2.
3.
4.
Straight-line method
Declining balance method
Sum of the years digit method
Any other method which may be
prescribed by the Secretary of
Finance upon the recommendation
of the Commissioner
F. DEPRECIATION
Section 34(F)(2)
STRAIGHT-LINE METHOD
If no salvage value,
COST
LIFE
DEPRECIATION
F. DEPRECIATION
Section 34(F)(2)
STRAIGHT-LINE METHOD
If with salvage value,
SV
COST
LIFE
DEPRECIATION
F. DEPRECIATION
DEPRECIATION OF PROPERTIES USED IN

PETROLEUM OPERATIONS
Section 34(F)(4)
Method of
Depreciation for
INITIALLY PLACED
PROPERTIES
STRAIGHT LINE
METHOD
DECLINING
BALANCE
METHOD
F. DEPRECIATION

Section 34(F)(4)
Initially elected
Method of
Depreciation
for INITIALLY
PLACED
PROPERTIES
At any subsequent date,

It can change to
DECLINING
BALANCE
METHOD
STRAIGHT
LINE
METHOD
F. DEPRECIATION

Section 34(F)(4)
Estimated USEFUL LIFE of

PROPETIES
NOT directly used or
Directly used or
related in the
related in the
production of
production of
petroleum
petroleum
5 years under
10 years or a
the Straight
shorter life as
Line
Method
permitted
by the BIR
atty.
cleo d. sabado-andrada,
cpa,
mba
F. DEPRECIATION

MINING OPERATIONS
Section 34(F)(5)
1. Expected life is ten (10) years or lessTHE
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 deduction
from taxable income.
4. The contractor should notify the BIR
Commissioner at the beginning of the depreciation
period as to which depreciation rate will be used.
F. DEPRECIATION
DEPRECIATION DEDUCTIBLE BY
NRA-ETB and RFC
Section 34(F)(6)
depreciable
asset
must
located in the Philippines.
be
III.
ITEMIZED DEDUCTIONS
G. DEPLETION OF OIL and

GAS WELLS and MINES
the exhaustion of natural resources like
mines, oil and gas wells due to production
similar to depreciation allowance, the
purpose of which is to recover the invested
capital in the property

GAS WELLS and MINES
WHO ARE ENTITLED TO CLAIM DEPLETION AS

DEDUCTION FROM GROSS INCOME
Persons who derived income from the extraction
of oil, gas and mineral for the purpose of
recovering his capital.
The taxpayer must acquire economic interest in a
mineral land and must have capital investment
in the property and not mere economic
disadvantage.

GAS WELLS and MINES
Requisites of deductibility:
1. Depletible natural resources assets like
mines, gas and oil wells.
2. Charged off within the taxable year
3. Allowance for depletion is computed in
accordance with the cost depletion method.
G. DEPLETION OF OIL and GAS WELLS and MINES

EXAMPLE with the COST DEPLETION METHOD
X Mining acquired a coal property with an estimated deposit
of 2,000,000 tons for P4,200,000. It is estimated that the
property has a salvage value of P200,000. If Baguio Mining
was able to produce 400,000 tons, What is the amount of the
deductible depletion expense during the year?
Cost of coal property
Less: Salvage value
Depletion base
Divided by estimated tons to be extracted
Depletion per ton
Multiplied by number of tons extracted during the
year
Depletion expense during the year
P4,200,000
200,000
P4,000,000
2,000,000
P
2
400,000
P 800,000

GAS WELLS and MINES
In case of foreign corporations,

depletion shall be allowed only if the mining
property is located in the Philippines.
G.DEPLETION OF OIL and GAS WELLS and MINES

EXPLORATION and DEVELOPMENT COST
Section 34(G)(2)
Exploration expenditures
expenses paid/incurred before the development
stage of the mine intended to ascertain the existence,
location, extent, or quality of any deposit of ore or other
mineral.
Development expenditures
expenditures paid or incurred during the
development stage of the mine or other natural deposits.
G.DEPLETION OF OIL and GAS WELLS and MINES

Section 34(G)(2)
TAX TREATMENT
During the taxable year, the TAXPAYER CAN TREAT IT
AS:
1.Part of adjusted basis for depletion cost
2. Deduction to compute taxable income from mining
operations

Section 34(G)(2)
TAX TREATMENT
If the TAXPAYER will choose option no. 2.
2. Deduction to compute taxable income from mining
operations
ALLOWED
IF:
CONDITIONS ARE COMPLIED WITH.


Section 34(G)(2)
CONDITIONS:
If total amount deductible for exploration and
development expenditures shall not exceed 25% of the
net income from mining operations computed without
the benefit of any tax incentives under existing laws.
The actual exploration and development expenditures
minus 25% of the net income from mining shall be
carried forward to the succeeding years until fully
deducted.
III.
ITEMIZED DEDUCTIONS
H. CHARITABLE and OTHER CONTRIBUTIONS
It is not an OPERATING EXPENSE.

BUT, allowed by law, to be deducted
from Gross Income
III.
ITEMIZED DEDUCTIONS

A.The contribution or gift must be actually
paid during the taxable year.
(must state the name and address of
organization, approximate date and amount of
the gift, if not money, FMV of the gift and must
be signed by the taxpayer or the responsible
officer of the corporation)
III.
ITEMIZED DEDUCTIONS

B. Must be given to the organization specified by
the TAX Code or special law.
C. The net income of the institution must not
inure to the benefit of any member or
individual.

As provided by the Tax Code, contributions or donations
made to the following are DEDUCTIBLE IN FULL.
1.Donations to the government or political
subdivision including fully owned government
corporation to be used exclusively in undertaking
PRIORITY ACTIVITIES IN education, health, youth and
sports development, human settlement, science and
culture, economic development.
2. Donations to international organizations or
foreign
institutions in compliance with agreements
or
treaties.

As provided by the Tax Code, contributions or donations
made to the following are DEDUCTIBLE IN FULL.
3. Donations to accredited non-government organizations
(NGO) Exclusively for; SCIENTIFIC, RESEARCH, CHARACTER
BUILDING, YOUTH and SPORTS DEVELOPMENT, HEALTH SOCIAL
WELFARE, CULTURAL, CHARITABLE and ANY
COMBINATION
THEREOF.
Provided, not more than 30% of the charitable

contribution should be used for administration purposes.
Provided further that, the contribution must be utilized
not later than the 15th day of the 3rd month after the close of
its taxable year.

As provided by Special Law, contributions or donations
made to the following are ALSO DEDUCTIBLE IN FULL.
1. Integrated Bar of the Philippines BP P (P.D. 1810)
2.Development Academy of the Philippines (P.D. 205)
3.Agricultural Department of Southeast Asian Fisheries
Development Center (P.D. 292)
4. National Social Action Council (P.D. 294)
5. Task Force on Human Settlement
6. National Museum, Library & Archives (P.D. 373)
7. Intramuros Administration (P.D. 1616)
8. Lungsod ng Kabataan (P.D. 1631)

Contribution subjects to Limitation :
are not deductible in full as specified by the law or such
deduction has not met the requisites to be deducted in full.
Corporate- 5% of the Net Income before charitable
contributions or the ACTUAL CONTRIBUTION whichever is
lower
Individual Taxpayer- 10% of the net Income before
Charitable contributions or the ACTUAL Contribution
whichever is LOWER.
III.
ITEMIZED DEDUCTIONS
I. RESEARCH and DEVELOPMENT
Costs incurred by the taxpayer during the taxable

year in connection with his trade, business or
profession for the following:
1.improvements of processes and formulas;
1.development of improved or new products.
I. RESEARCH and DEVELOPMENT

TAX TREATMENT
DEFERRED
EXPENSES
CHARGE TO
CAPITAL
ACCOUNT
Ordinary and
Necessary
Expense
DEDUCT
FROM GROSS
INCOME
Allowed as deduction ratably distributed for a

period of not less than 60 months beginning
with the month in which the taxpayer FIRST
REALIZES benefits from such expenditure.
III.
ITEMIZED DEDUCTIONS
J. PENSION TRUSTS
fund intended to provide retirement

benefits to the employees.
J. PENSION TRUSTS
Requisites for deductibility:
1. Employer must have established a pension or
retirement plan for the payment of reasonable
pension to its employees and approved by the
BIR;
2. Pension plan is reasonable and actuarially sound.
3. It must be funded by the employer
4. Amount contributed by the employer must no longer
be subject to control of the employer

SUBSTITUTES FOR THE DISALLOWANCE OF
FAMILY, LIVING and PERSONAL EXPENSES
Kinds
BASIC PERSONAL EXEMPTION
ADDITIONAL PERSONAL EXEMPTION
PERSONAL EXEMPTION
I.
BASIC
PERSONAL
EXEMPTION
II.
ADDITIONAL
PERSONAL
EXEMPTION
P50,000
whether taxpayer is
married, head of
the family or single.
P25,000
IN ADDITION to the basic
personal exemption for each
qualified dependent children not
exceeding four (4).
(R.A. 9504)
(R.A. 9504)
PERSONAL EXEMPTION (PE)

TAXPAYERS ALLOWED
TAXPAYERS NOT ALLOWED
for PERSONAL EXEMPTION FOR PERSONAL EXEMPTION
1. RC
2. NRC
3. RA
4. Estates and Trusts
5. NRA-ETB enjoying
reciprocity clause
1. NRA-ETB not
enjoying
reciprocity clause
2. NRA-NETB
3. Corporations
4. Partnerships

PRINCIPLE OF RECIPROCITY
Section 35(D)
means that NRAETB shall be allowed a personal exemption
only if the income tax law in his country grants
personal exemptions to the citizens and residents of
the Philippines, subject to the following limitations:
The personal exemption does not include additional
exemption; and
The amount of exemption shall in no case exceed the
personal exemption granted by our law to citizens or
residents of the Philippines.

PRINCIPLE OF RECIPROCITY
Section 35(D)
NRA-ETB
Those who have stayed within the

Philippines for more than 180 days during
the taxable year shall be deemed
nonresident aliens doing business in the
Philippines.
Mr.
Cortez is non-resident alien based in

HongKong. During the calendar year 1999, he
came to the Philippines several times and
stayed in the country for an aggregated period of
more than 180 days. How will Mr. Cortez be
taxed on his income derived from sources within
the Philippines and from abroad?

TAXPAYERS ENTITLED TO ADDITIONAL EXEMPTIONS
1. RC
2. NRC
3. RA if qualified children are LIVING
WITH HIM IN THE PHILIPPINES
If children are living abroad, RA is not
entitled to additional exemptions.

REQUISITES for ADDITIONAL EXEMPTIONS
DEPENDENT MUST BE:

1.a taxpayers child, whether
illegitimate or legally adopted;
2. chiefly
taxpayer;
depending
for
legitimate,
support
3. living with the taxpayer;

on
the

REQUISITES for ADDITIONAL EXEMPTIONS
DEPENDENT MUST BE:
4. not married; not gainfully employed, and not more
than 21 years old. (Sec. 35(B), NIRC)
The law allows the continuous additional exemption even if
the dependent child is more than 21 years old, with the
provision stating or if such dependent, regardless of
age, is incapable of self-support because of mental or
physical defect. (Sec. 35B, par.4, NIRC)

RULES IN CLAIMING
ADDITIONAL EXEMPTIONS
If BOTH spouses are working,
only one can claim the additional
If only one spouse
exemption.
is working,
General Rule: Husband is the proper
said spouse may
claimant.
claim
Exemption:
Wife can claim if:
Additional
-husband explicitly waives
Exemption.
his right
- husband has no income.
-husband works abroad.
Charlie, a widower, has two sons by his previous

marriage, Charlie lives with Jane who is legally
married to Mario, They have a child named Jill. The
children are all minors and not gainfully employed.
1. How much personal exemption can Charlie
claim? Explain.
2.How much additional exemption can Charlie
claim? Explain.


QUALIFIED DEPENDENTS OTHER THAN CHILDREN
A. PARENTS
1. incapable of self support
2. taxpayer should provide the chief support.
B. BROTHERS/SISTERS
1. should not be more than 21 years old
2. should not be gainfully employed
3. regardless of age, if brother/sister is incapable of self
support due to mental or physical defect
4. taxpayer provided for the chief support.

C. SENIOR CITIZEN
1. resident of the Philippines
2. at least 60 years old
3. retired from either government or private service
2. has income of NOT MORE THAN P60,000 per year
which will be reviewed by NEDA every 3 years.

Taxpayer or benefactor of senior citizen shall be

entitled only to the BASIC PESONAL EXEMPTION of
P50,000.
He shall not
be entitled to claim the
ADDITIONAL EXEMPTION OF P25,000 for
supporting his/her parents, brother/sister or
senior citizen
CHANGE OF STATUS SUMMARY

Individual Taxpayer
Exemption
Change of Status:
This year
1.Married
P50,000
2.Died
P50,000
3.Widowed with 1 qualified dependent child
P75,000
4.Widowed with qualified dependent not his
P50,000
child
P50,000
5.Widowed without dependents
6.Legally separated with 1 qualified
P75,000
dependent child
7.Legally separated with qualified dependent
P50,000
not his child
P50,000
8.Legally
separated
without dependents
P50,000
atty. cleo
d. sabado-andrada,
cpa, mba
Next year
P50,000
P75,000
P50,000
P50,000
P75,000
P50,000
P50,000
P50,000
CHANGE OF STATUS SUMMARY

DEPENDENT CHILDREN
(Maximum of Four)
Additional Exemption
Change of Status:
1.Born
2.Reaches 21 years old normal child
3.Reaches 21 years old abnormal child and
incapable to support himself
4.Marries
5.Gainfully employed
6.Dies
This year
P25,000
P25,000
Next year
P25,000
P25,000
P25,000
P25,000
P25,000
P25,000
RAM got married to LISA las January 2003. On

November 20, 2003, LISA gave birth to twins.
Unfortunately, however, LISA died in the course of
her delivery. Due to complications, one of the twins
also died on December 15, 2003.
In preparing his Income Tax Rfeturn (ITR) for the
year 2003, what should RAM indicate in the ITR as
his civil status? (a) single (b) married Head of the
Family (d) widower (e) none of the above. Why?
Reasons.
Dependent means a legitimate, illegitimate

or legally adopted child chiefly dependent
upon and living with the taxpayer if such
dependent met the criteria provided under
Sec. 35(b) of NIRC.
head of family means an unmarried or legally

separated man or woman with one or both parents, or
with one or more brothers or sisters, or with one or
more legitimate, recognized, natural, or legally
adopted children, living with and dependent upon him
or her for their chief support; where such brothers,
sisters or children are not more than twenty-one years
of age, unmarried, and not gainfully employed; or
where such brothers, sisters or children, regardless of
age, are incapable of self-support because of mental
or physical defect. (Sec. 35A par.3, NIRC)
Arnold who is single, cohabits with Vilma, who is

legally married to Zachary. Arnold and Vilma have
six minor children who lived and depend upon
Arnold for their chief support. The children are not
married and not gainfully employed.
1.For income tax purposes, may Arnold be
considered as head of the family?
2.Is Arnold entitled to deduct from his gross income
an additional exemption for each of his legitimate
child?
living with may be construed that the

taxpayer and his dependents reside under
one roof, or do not necessarily reside
under one roof with consideration on the
character of the separation.
Gainfully employed means that the

dependent is engaged in an employment, work
or trade that will remove him from the status
of chief support from the taxpayer.
Chief support refers to the principal or main

support whether money or in kind extended
continuously to the dependent, such that if
withdrawn, the dependent will have a destitute
life.
Mar got married in 1990. A week before their marriage, Joy

received, by way of donation, a condominium unit worth
P750,000 from her parents. After marriage, some
renovations were made at a cost of P150,000. The spouses
were both employed in 1991 by the same company. On 30
December 1992, their first child was born, and a second
child was born on 07 November 1993. In 1994, they sold the
condominium unit and bought a new unit.
Under the foregoing facts, what were the events in the life of
the spouses that had income tax incidences?


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Allowableasdasdasdasdasdadeductions Personal Exemptions

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Distinguish a Exclusion from

Gross Income from Deductions

atty. cleo d. sabado-andrada, cpa, mba

Should not form part

atty. cleo d. sabado-andrada, cpa, mba

SHALL NOT APPLY TO

EXCEPT Section 34 (M).

CAN BE DEDUCTED from

Section 35 of the NIRC

atty. cleo d. sabado-andrada, cpa, mba

To cover the family,

atty. cleo d. sabado-andrada, cpa, mba

Family, living and

atty. cleo d. sabado-andrada, cpa, mba

atty. cleo d. sabado-andrada, cpa, mba

SHALL NOT APPLY TO

EXCEPT Section 34 (M).

CAN BE DEDUCTED from

Section 34 of the NIRC

These are amounts allowed by law to

atty. cleo d. sabado-andrada, cpa, mba

Section 34 of the NIRC

Section 34 of the NIRC

Section 34 of the NIRC

If expenses were incurred and there r no

atty. cleo d. sabado-andrada, cpa, mba

KINDS OF ALLOWABLE DEDUCTIONS

premiums paid during the taxable year for

applicable only to individual

atty. cleo d. sabado-andrada, cpa, mba

CONDITIONS BEFORE PHHI SHALL BE

1. That the family had a gross income of not

CONDITIONS BEFORE PHHI SHALL BE

2. In case of married persons, only the

atty. cleo d. sabado-andrada, cpa, mba

CONDITIONS BEFORE PHHI SHALL BE

3. The deduction shall not exceed P2,400

atty. cleo d. sabado-andrada, cpa, mba

KINDS OF ALLOWABLE DEDUCTIONS

OSD is a deduction from gross income allowed

atty. cleo d. sabado-andrada, cpa, mba

other than NRA

It should be emphasized that the

atty. cleo d. sabado-andrada, cpa, mba

In the case of sellers of services, the

SEC. 5. ILLUSTRATIVE EXAMPLES IN

atty. cleo d. sabado-andrada, cpa, mba

Less: Cost of Goods Sold

X OSD Rate (maximum)

atty. cleo d. sabado-andrada, cpa, mba

Less: Cost of Sales

Less: OSD (maximum)

atty. cleo d. sabado-andrada, cpa, mba

If the GPP availed of the itemized deduction in

atty. cleo d. sabado-andrada, cpa, mba

Hence, if the GPP availed of itemized

If the partner also derives other gross

atty. cleo d. sabado-andrada, cpa, mba

the taxpayer must signifies in his return his

The election of OSD is irrevocable for

atty. cleo d. sabado-andrada, cpa, mba

The election to claim either the OSD or the

SHALL NOT APPLY TO

KINDS OF ALLOWABLE DEDUCTIONS