Deductions

Question 1

Gross income

Answer 1

Except as othewise provided, it means all income derived from whatever sources, including:

1. Compensation for services in whatever form paid or incurred, but not limited to fees, salaries, wages, commissions and similar means.
2. Gross income derived from the conduct of tade, biz or profession.
3. Gains derived from dealings in property.
4. Interests
5. Rents
6. Royalties
7. Dividends
8. Annuities
9. Prizes and winnings
10. Pensions
11. Partners share in the distributive income of GPP

Question 2

Excusions

Answer 2

Not included and exempt from taxation:

1.

Question 5

Conditions for taxabilitity of Losses

Answer 5

1. The loss must be that of a taxpayer.
2. The loss is actually sustained and charged off within the taxable year.
3. The loss is evidenced by a close and completed transaction.
4. The loss is not claimed as a deduction for estate tax purposes.
5. The loss is not compensated by insurance or otherwise.
6. Loss must be connected with his trade or business or profession or incurred in any transaction for profit.
7. In case of casualty loss, it has been reported to the BIR w/in 45 days from the occurence of the loss.

Question 6

Conditions fo deductibility of DEPRECIATION

Answer 6

1. The allowance for depreciation must be reasonable.
2. It must be for property arising out of its use in the trade or business or out of its not being used temporarily during the year.
3. It must be charged off during the taxable year from the taxpayers books of account.

Question 7

Charitable Contributions Deduction

Answer 7

1. Must actually be paid or made to the phil govt or any political subdivision or any domestic corp or association specified in the tax code (no part must inure to the benefit of any private person)
2. Must be made within the taxable year.
3. It must not exceed 10% for individual or 5% for corp of the taxpayers taxable income before charitable contributions (whether deductible in full kr subject to limitations)
4. It must be substatiated
5. The amount of contribution must be based on the acquisition cost of the property.

Question 8

OPTIONAL STANDARD DEDUCTION

Answer 8

1. OSD is only available to RC, RA, DC, and RFC.
2. Must signify in his return that he elects OSD.
3. Election to OSD is irrevocable for the year made.
4. Limited to 40% of gross sales or gross receipt.
5. Proof of actual deductions not required.

Question 9

Bad debt theory

Answer 9

Embezzlement of funds creates a debtor-creditor relationship, the loss is deductible as bad debt from the year when the right of recovery becomes worthless.

Question 10

Conditions for deductibility of Taxes

Answer 10

1. Payment must be for taxes.
2. Taxes are imposed by law upon the taxpayer.
3. It must be paid or accrued during the taxable year in connectionwith TP’s trade, biz or profession
4. Not excluded from gross income

Question 11

Capital goods

Answer 11

1. They have estimated useful life greate than 1 yr.
2. Treated as depreciable assets.
   - it is depreciable if used on trade or business or held for the production of income and subject to exhaustion within determinable period of time.
3. Used directly or indirectly in the production or sale of taxable goods or services.

Question 12

Non deductible items

Answer 12

1. Personal, living or family expenses
2. CAPEX- Amount paid out for new buildings or for permanent improvements or betterment made to increase the value of the property
3. Amount spent on restoring property which allowance for depreciation was made
4. Premiums paid on any life insurance policy, but deductible if beneficiary is other than corp or payor.
5. Losses from sales or exchange of property between related taxpayers
6. Political campaign expenses