Professional Documents
Culture Documents
Kinds
BASIC PERSONAL EXEMPTION
Corporate
Taxpayers except
NRFC, it can also Individual
be claimed by
As to Taxpayers only
CLAIMANT except NRA-
Individual
Taxpayers except NETB.
NRA-NETB.
atty. cleo d. sabado-andrada, cpa, mba
Deductions from Allowance for
Gross Income Personal Exemptions
Section 34 Section 35
1. Itemized
Deductions
2. Optional 1. Basic Persona
Deductions Exemption
As to 2. Additional
(OSD) of 40% of KINDS
Gross Income or Personal
Receipt. Exemption.
OSD is applicable to
individual and
corporate
taxpayers (Sec. 3
R.A. 9504)
atty. cleo d. sabado-andrada, cpa, mba
Section
Section 34
34 of
of the
the NIRC
NIRC
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,
Section 34 of the NIRC
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
atty. cleo d. sabado-andrada, cpa, mba
Section 34 of the NIRC
BASIC PRINCIPLES
If expenses were incurred and there r no
documentary evidence to support such,
BIR must make an estimate of
Cohan
deduction that may be allowed in
Rule
computing the taxpayers taxable
Principle
income.
disallowance of 50% of
the taxpayers claimed
deduction is VALID.
atty. cleo d. sabado-andrada, cpa, mba
KINDS OF ALLOWABLE DEDUCTIONS
I.
PREMIUM PAYMENTS ON HEALTH
and/or HOSPITALIZATION INSURANCE
(PHHI) Section 34(M)
2. Corporations:
i. Domestic corporation
ii. Resident foreign corporation
II.
OPTIONAL STANDARD DEDUCTION
(OSD)
OSD
RATE
40% 40%
Of Gross Sales/Gross Of Gross Income
Receipts CORPORATE
INDIVIDUAL TAXPAYERS, TAXPAYERS
other than NRA
atty. cleo d. sabado-andrada, cpa, mba
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
atty. cleo d. sabado-andrada, cpa, mba
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,
atty. cleo d. sabado-andrada, cpa, mba
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.
KINDS OF ITEMIZED
DEDUCTION
(by statutory classification)
A.Business Expenses
B.Interest
C.Taxes
D.Losses
E.Bad Debts
atty. cleo d. sabado-andrada, cpa, mba
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
Requisites:
Requisites:
- Must be substantiated.
- All payments for the purchase of promotional give-
aways, 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.
atty. cleo d. sabado-andrada, cpa, mba
III.
ITEMIZED DEDUCTIONS
KINDS of BUSINESS EXPENSES
5. Rent Expense
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
atty. cleo d. sabado-andrada, cpa, mba
III.
ITEMIZED DEDUCTIONS
B. Interest Expenses
For corporation,
the loan must be obtained in its
corporate capacity, using corporate
assets as security.
III.
ITEMIZED DEDUCTIONS
B. Interest Expenses
BUT,
Section 39(A)(2)(3)
of the NIRC
FOR MINES
(other than oil and gas wells)
f s h o re Enterprise registe
red with
O n it
g U the Board of Inve
Bankin eign stments
n d F o r
a cy
C urr e n Enterprise registered
s i t U n it under the bases
Depo
Conversion and
Development Act of 1992
Enterprise Foreign Corporations engaged in
registered with International Shipping or air
PEZA carriage business in the
Philippines.
III.
ITEMIZED DEDUCTIONS
E. BAD DEBTS
A ascertain to be worthless
It must be reasonable.
1. Straight-line method
2. Declining balance method
3. Sum of the years digit method
4. Any other method which may be
prescribed by the Secretary of
Finance upon the recommendation
of the Commissioner
F. DEPRECIATION
METHODS OF DEPRECIATION
Section 34(F)(2)
STRAIGHT-LINE METHOD
If no salvage value,
STRAIGHT-LINE METHOD
If with salvage value,
COST SV
DEPRECIATION
LIFE
F. DEPRECIATION
Method of
Depreciation for
INITIALLY PLACED
PROPERTIES
STRAIGHT LINE DECLINING
METHOD BALANCE
METHOD
Requisites of deductibility:
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.
TAX TREATMENT
TAX TREATMENT
If the TAXPAYER will choose option no. 2.
2. Deduction to compute taxable income from mining
operations
ALLOWED
IF:
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.
J. PENSION TRUSTS
Kinds
BASIC PERSONAL EXEMPTION
P50,000 P25,000
whether taxpayer is IN ADDITION to the basic
personal exemption for each
married, head of qualified dependent children not
the family or single. exceeding four (4).
(R.A. 9504) (R.A. 9504)
atty. cleo d. sabado-andrada, cpa, mba
PERSONAL EXEMPTION (PE)
TAXPAYERS ALLOWED TAXPAYERS NOT ALLOWED
for PERSONAL EXEMPTION FOR PERSONAL EXEMPTION
1. RC 1. NRA-ETB not
2. NRC enjoying
3. RA reciprocity clause
4. Estates and Trusts 2. NRA-NETB
5. NRA-ETB enjoying 3. Corporations
reciprocity clause 4. Partnerships
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.
1. RC
2. NRC
3. RA if qualified children are LIVING
WITH HIM IN THE PHILIPPINES
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.
atty. cleo d. sabado-andrada, cpa, mba
PERSONAL EXEMPTION (PE)
QUALIFIED DEPENDENTS OTHER THAN CHILDREN
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.
DEPENDENT CHILDREN
(Maximum of Four)
Additional Exemption
Under the foregoing facts, what were the events in the life of
the spouses that had income tax incidences?