Income Tax - Deductions Flashcards
Which interest expense are nondeductible?
- Incurred to finance petroleum operations
- Personal loans
- Related parties
- Discounts or pre-deducted interest
- Interest on redeemable preference shares
- Imputed interest
Which taxes are nondeductible?
- Stock transaction tax & IPO Tax
- FIT, CGT, RIT, Donor’s Tax and Estate Tax
- Special Assessment
- Surcharge and penalty
Requisites for losses to be deductible
- Declared within 45 days from discovery
- Not compensated by insurance
- Not claimed as deduction in the estate
- Loss of capital dapat
Nondeductible Bad Debts
- Securities becoming worthless (other banks)
- Loss on capital investments in Partnerships, JV / Corp
- Personal bad debts
Allowable depreciation for vehicles:
-Only one per official & employee, not exceeding P2,400,000
For Petroleum Companies:
-UL of not more than 10 yrs if directly related
-UL of 5 years if not directly related
How are intangible depletion costs acctd/deducted if incurred before commercial production?
Capitalized as cost of wasting asset
How are intangible depletion costs acctd/deducted if incurred after commercial production?
1) Dry Holes - deducted in the period paid, not exceeding 25% of NI from MINING OPERATIONS
2) Successful Wells:
A) Capitalized & Amortized using the cost-depletion method
OR
B) Deducted in year incurred - IRREVOCABLE applied on a per contract area basis
Requisite to deduct charitable & other contributions
1) Donee must be a domestic institution, xep if under treaty/intl agr.
2) Income of donee does not inure to benefit of any private stockholder/individual
3) Contribution - valued at TAX BASIS of property donated
4) TP is engaged in trade/bsns
5) Donee is issued a Certificate of Donation BIR Form 2322, including thhe donor’s statement of values
Fully deductible and partially deductible charitable and other contributions
Fully deductible: 1) Government, priority activities (CHEESY)
2) Accredited DOMESTIC Non government organizations (w cert from DSWD,DOST,PSC,NCCA,CHED); or (IBP,IRRI,DAP,UP+SC, CulturalCenterPH,ArtesianWellFund,RamonMagsaysay, TaskForce onHumanSettlements,NationalMuseum…)
3) Treaties, Special laws/corps, donations to FOREIGN inst….
Partially deductible: (10% of Taxable income from trade/bsns/profession if Individual, 5% if corp)
1) Govnt, nonpriority activities, but for PUBLIC PURPOSE
2) Non-accredited NGOs but DOMESTIC: (REYSCCR)
Deduction rules of service cost under defined benefit plan
Current service cost is fully deductible
Past service cost must be amortized over 10 years
Any under funding should be charged from any excess in succeeding years
Cash basis deductions
Cash Expenses \+Amortization of prepayments \+Depreciation --------------------------------------------- Cash Basis Deductions ===========================
Requisites for deductibility of donation to NGOs
- Org excl for such purpose
- use the contribution not later than the 15th day of the 3rd mo after the close of its taxable period
- Admin exp <30% of total expenses
- BOT members do not receive remuneration
- If liquidated, NGO’s assets will be distributed to another nonprofit domestic corp/
- Donation must be valued at acq cost
Bad debt loss for securities becoming worthless for banks and trust companies are deductible
YES, TRUE
How to compute OSD
For INDIVIDUALS, the OSD is 40% of GROSS OPERATING RECEIPTS (item 36-net of returns allowances and discounts), NOT including NONOPERATING income. Yup, yung pinakataas lang, di kasama COS ha.
For corporations, the OSD is 40% of TOTAL GROSS INCOME AFTER COS. This includes nonoperating income.
EAR Expense Rules
Ceiling of:
0.5% of Net Sales
and 1% of Net Revenues.
If TP has both, then Actual EAR x Prop%/Total
Prorated EAR for Sales VS 0.5% CEILING
Prorated EAR for Revenus VS 1% CEILING
