Deductions from Gross Income

Question 1

Deductions from GI
OSD percentage and base on individual and corporation

Answer 1

40%
Tax base:
1. Individual - Gross Sales/Receipts
2. Corporations - Gross Income (Gross Sales/Receipts less Costs)

Please take note on this tax base. Magkaiba sila kasi iba naman talaga percentage of tax nila.

Question 2

Deduction from GI
OSD is applicable to?

Answer 2

RC, NRC, RA
DC, RFC, GPP
Other entities on which rules for DC apply (taxable partneship, JV, etc)

Not to NRA and NonResident Foreign Corporations

Question 3

Deduction from GI
Election of OSD must be communicated in the 1st quarter return. It cannot later on modify for the Annual Income Tax Return

Answer 3

Oks

Question 4

Deduction from GI
Kinds of Itemized Deduction:
Entertainment, Amusement and Representation (EAR)
Explain the deduction Ceiling on EAR for:
1. Seller of goods/properties
2. Seller of Services
3. Mixed (how to allocate EAR exp)

Answer 4

1. .50% of net sales
2. 1% of net revenues
3. Meaning, may EAR expenses yung business tapos engaged sya sa selling of goods and services. So ipro rata mo lang yung conso expenses based sa sales nila. Basta yung makukuha mo, subject padin sa ceiling which is the same as above.

Question 5

Deduction from GI
Bribes, Kickbacks and Similar payments deductible?

Answer 5

No! But remember, st shall form part of GI (taxable) if receive

Question 6

Deduction from GI
Kinds of Itemized Deduction:
Interest
1. List some important requisites for deductibility
2. Explain Tax/Interest Arbitrage (Limitation on deductibility)

Answer 6

1:
a. An endebtedness exists
b. Stiputaled in writing
c. Interest is legally due
d. Not between related taxpayers
e. Int was not incurred to finance pertoleum explorations
d. Int was not capitalized (borrowing costs)

2. The deductible interest expense SHALL BE REDUCED by an amount equal to 20% of interest income earned which had been subjected to the 20% FWT (PERO DAPAT GROSSED UP YUNG INT INCOME SO KUNG NET OF FT NA SYA, IGROSSED UP MO MUNA). (VERY IMPORTANT)

Question 7

Deduction from GI
Kinds of Itemized Deduction:
Taxes - incurred within taxable year in connection with taxpayer’s trade pr business
Provide list of deductible and not deductible

Answer 7

Deductible:
a. Local Business Taxes
b. Real property taxes
c. License and permit taxes
d. Percentage taxes (except Stock transaction tax and tax on IPO)
e. Documentary taxes

Non-deductible:
a. Philippine Income Tax
b. Foreign income tax
c. Estate and donor’s tax
d. Taxes assessed against local benefits of a kind that tends to increase the value of the property assessed

Question 8

Deduction from GI
Kinds of Itemized Deduction:
Losses
1. Explain Insurance received as compensation for a loss.

2. Basis property loss. Carrying amount or FV?

Answer 8

1. Must be subtracted in arriving the amount of loss. If the proceeds exceed the net book value of the damaged assets, such excess shall be subject to regular income tax, not VAT since not sale.
2. Carrying amount

Question 9

Deduction from GI
Kinds of Itemized Deduction:
NOLCO
The NOLCO may be carried over as a deduction from gross income fpr the next 3 CONSECUTUVE taxable years immediately following the year of such loss. However, under Bayanihan Act, fo NOLCO incurred during 2020 and 2021 can be carried over for 5 YEARS.

1. Please explain the effect of OSD AND MCIT.
2. List of NOT entitled for NOLCO.

Answer 9

1. If the OSD or MCIT are availed, taxpayer cannot claim NOLCO.
   BUT TAKE NOTE THAT 3 or 5 year consecutive carry pver period is not interrupted.

2.
a. OBUs and FCDUs (with exception)
b. Registered with BOI or PEZA enjoying Income Tax Holiday
c. SBMA registred enterprises
d. Foreign corporations egaged on international shipping or air carriage business in the PH
e. Any person enjoying exemption from income tax

Note: impairment loss is not deductible

Question 10

Deduction from GI
Kinds of Itemized Deduction:
Bad Debts
1. Important requisites
2. Rules on recovery of bad debts previously written off
3. IMPT: When shall bad debts expense be claimed as allowable deduction from GI?

Answer 10

1. -must NOT sustained between related parties
   -dapat may entry sa book of accounts
2. Taxable if previously claimed as deduction. Otherwise, not taxable. Tax benefit rule.
3. On the taxable year the bad debt is actually written off

Question 11

Deduction from GI
Kinds of Itemized Deduction:
Depreciation
Basic lang. Basta:
a. Must be reasonable
b. Must be property used or employed in the business
c. Must be charge off during the year

Then kahit anong depreciation method na.

Answer 11

Oks

Question 12

Deduction from GI
Kinds of Itemized Deduction:
Depletion
Rules:
a. For entities engaged in oil and gas wells or mines
b. Under cost depletion method
c. Not allowed if the depletion allowance has equaled the invested capital

Question 13

Deduction from GI
Kinds of Itemized Deduction:
Charitable and other Contributions
1. Requisites of deductibility? For donation worth over 50k?
2. When fully deductible?
3. When deductibilty is limited? Cieling for or individual and corporate donor.
4. Campaign contributions?
5. Covid related contri or donations?

Answer 13

1. a. Evidence or proof submitted to BIR by showing the Certificates of Donation indicating: 1. Actual receipt and date receipt 2. Amount
   b. If over 50k, Notice to the RDO is required and Certificate of Donation must be attached
2. Donations must be made to:
   a. Government or any entities or org created by its agencies
   b. Accredited non-stock, non-profit EDUCATIONAL OR CHARITABLE RELIGIOUS, CULTURAL OR WELFARE
3. Donations to non-stock, non-profit Corporations
   a. Iindividual - not in excess of 10% of donor’s income derive from trade, business or profession before donation
   b. Corporate donor - not in excess of 5% .. same above.
4. Deductible only if the same is declared in the Statement of Expenditures submitted by the candidate to Comelec
5. Fully deductible

Question 14

Deductions
Failure to withhold and remit taxes when the law requires that a taxpayer becomes withholdng agent will result to:

Answer 14

1. Non-deductibility of expenses
2. Interest and Penalties

Question 15

Deduction to GI
Pensions/Retirement Expense
Conteibution made to a pension trust may be claimed as deduction in the ff manner:

Answer 15

A. Normal Service Cost - 100% deductible

B. Past Service cost - 1/10. Remaining balance will be amortized equally over nine consecutive years

Question 16

Deduction to GI
Senior Citizen and PWD discount
1. Exlpain presentation of the 20% granted to them

2. Items not deductible

Answer 16

1. Kasama padin dapat sa gross sales pero form part ng Itemized deductions / operating expenses

2.
Personal, living or family expenses
Payment for new buildings
Expenses restpring property
Premium paid on any life insurance
Losses from sales or exchanges of property bet related parties

Question 17

Deduction to GI
Additional Deduction on Labor Training Expenses
1. CREATE Law now includes an ADDITIONAL deduction from taxable income of?

2. Trainees should be enrolled in:
3. Maximum Additional Deduction?

Answer 17

1. 50% of the value of labor expenses
2. Public schools
3. 10% of Direct Labor Wage

Question 18

Deductions From GI

Note:
1. Deduction can be OSD or Itemized Deductions

Question 19

Deductuons From GI

List of Itemized Deductions
1. Travel Expenses
2. Rental Expenses
3. Entertainment, Amusement and Representation (EAR) Expense
4. Interests Expense
5. Taxes
6. Losses
7. Net Operating Loss Carry Over (NOLCO)
8. Bad Debts
9. Depreciation
10. Charitable and Other Contributions
11. Research and Development
12. Pensions/Retirement Expense
13. Senior Citizen and PWD Discount
14. Additional Deduction on Labor Training Expenses