IT - Deductions Flashcards
(T/F) Bribes and kickbacks necessary to realize profits are allowed as deductions from gross income.
False.
(T/F) Travel expenses, to be deductible on the employer’s ITR, must be incurred while away from (tax) home.
True. Tax home - place of work, business, employment
Ceiling for EAR of taxpayers engaged in sale of goods and properties
1/2 of 1% of net sales
Ceiling for EAR of taxpayers engaged in sale of services/leasing
1% of net revenues
(T/F) Advance or prepaid rentals are not allowed to be deducted in year of payments, but apportioned over the term of the lease.
True.
Taxes and other obligations of the lessor, paid by the lessee, are allowed as deductions of the lessee.
True.
(T/F) Depreciation of leasehold improvement is available as a deduction to the lessee
True.
(T/F) Deductions are amounts allowed by the Tax Code to be deducted from gross income to arrive at the income tax liability of a taxpayer.
False. To arrive at TAXABLE INCOME.
Special expense allowed to Private Educational Institution
Capital outlays for expansion of school facilities may be:
- Expensed immediately
- Capitalized and depreciated
(T/F) Interest on home mortgage is allowed as a deduction.
False. Not connected with TBP of taxpayer
Reduction of Allowable Deduction for Interest Expense (beg. Jan. 1, 09)
33% of interest income subject to FWT
When Interest Expense is Deductible in Full (3)
- No interest income subject to FWT
- Interest on all unpaid business related taxes
- Socialised housing project
Optional treatment of interest incurred to acquire property used in TBP
- Immediately expensed
2. Capitalized as part of cost of property
(T/F) Interest paid in advance by a cash-basis taxpayer is deductible in the year the interest is paid.
False. Deductible only in the year the debt is paid.
If indebtedness is payable in periodic amortizations, the amount of interest which corresponds to the amount of principal amortized or paid shall be allowed as deduction in that taxable year.
Related taxpayers (4)
- Taxpayer & sibling, spouse, ancestors and lineal descendants
- Corporation and individual; individual owns >50% of outstanding stock
- Two corporations, owned by same individual with >50% of outstanding stock of each
**2 and 3 EXCEPT in cases of corporate liquidation
4-6. Letter A figure. Grantor - F - F - B -B
(T/F) Interest should be stipulated in writing to be deductible.
True.
Examples of non-deductible taxes
Income tax Foreign income tax claimed as tax credit Estate tax Donor's tax Special assessments VAT** (input VAT allocated to exempt sales is deductible) Final Taxes STT CGT
(T/F) An expense which is necessary but not ordinary, or ordinary but not necessary, is deductible from gross income.
False. Ordinary AND necessary dapat.
(T/F) The taxpayer must signify his intention to elect ID, otherwise, he is deemed to have chosen OSD.
False. Baliktad.
(T/F) Interest on preferred stock is deductible from gross income of the paying corporation.
False. These are dividends, not interest expense.
(T/F) Fines and penalties imposed due to late payment of tax are not deductible. But interest imposed due to the same is deductible.
True.
Deductible amount for TOTAL losses
Book value less insurance proceeds/compensation
Deductible amount for PARTIAL losses
Replacement value or book value - LOWER
Excess of replacement over book shall be capitalized and depreciated over remaining life.
(T/F) If the net operating loss was incurred in a year during which the taxpayer was exempt from income tax, no NOLCO.
True.
Define net operating loss.
Excess of ALLOWABLE DEDUCTIONS over gross income in a taxable year.
For mines other than oil and gas wells, NOL incurred without the benefit of incentives under Omnibus Investment Code, in any of the first ___ years of operations, can be carried over as deductions for the next ___ years following the year of loss.
10; 5
(T/F) Wagering losses are deductible only to the extent of gains/winnings from such transactions.
True.
(T/F) When a taxpayer buys land on which structures are erected, and then proceeds to remove the structures, no loss may be deducted from the removal of said structures.
True.
(T/F) Mere shrinkage in value of stocks is not deductible.
True.
Is a cousin a related taxpayer?
No. Not a sibling, spouse, ancestor, or lineal descendant.
Any amount subsequently received on account of a bad debt previously charged off and allowed as a deduction from gross income in prior years must be included in gross income in the taxable year which received.
Equitable doctrine of tax benefit.
Deductions are not allowed between related taxpayers for the following (3):
- Interest expense
- Bad debts
- Losses from sales or exchanges of property
Properties used directly in the production of petroleum shall be depreciated over ___ years or such shorter life.
10
Properties not used directly in the production of petroleum shall be depreciated over ___ years.
5
Favorable depreciation rate for mining operations
If property used in mining has expected life of MORE THAN 10 years,
Depreciate between 5 years and expected life
Otherwise,
Depreciate at normal rate of depreciation
(T/F) Maintenance expenses of non-depreciable vehicles are NOT allowed as deductions.
True.
(T/F) Non-depreciable vehicles include yachts, helicopters, airplanes, land vehicles which have a have a value of MORE THAN 2.4 MILLION.
True. These become depreciable only if the taxpayer is engaged in transportation and the vehicles are used in operations.
Treatment of current service cost.
Deductible in full
Treatment of past service cost.
Prorated over 10 years
Charitable contributions / donations DEDUCTIBLE IN FULL (4)
- PRIORITY ACTIVITIES
- Foreign institutions
- Special law (state univ, CCP, NCCA, IBP, IRRI, Red Cross, DSWD child-caring institutions)
- Accredited NGOs
Ceiling / limit for deductible contributions
Corporations: 5%
Individual: 10%
Of taxable income DERIVED FROM TBP, BEFORE the contributions.
Optional treatment for R&D Expenditures
- Deduct outright
- - Taxpayer CANNOT use this if expense is for acquisition of property subject to dep’n or depl’n; or for exploration costs - Deferred expense, amortize over a period of at least 60 months beginning the month that benefits are first realized from the expenditure
(T/F) Only the spouse claiming the additional exemptions for dependents shall be entitled to deduct PP on HH insurance.
True.
(T/F) Gross income of family should not exceed 250,000 pesos for the T.Y. in order to claim the deduction for PP on HH.
True.
(T/F) The HH may be availed of whether the individual taxpayer engaged in TBP itemizes deductions or elects OSD.
True.
Deduction of establishments granting sales discounts to PWDs
Sales discount deducted from GI after deducting COS. Only the actual amount or 20% of GSP (lower) shall be deducted, net of VAT.
Tax incentives for employers of DISABLED persons
Salaries and wages to PWD x 1.25
Cost of improvement/modifications x 1.5
Tax incentives for establishments granting sales discounts to SENIOR CITIZENS
Actual amount, or statutory rate based on GSP – whichever is lower
Statutory rates:
20% discount
5% discount on water and electric consumption by SC
50% on electricity, water, and telephone consumption by SC center
Additional deductions for employers of SENIOR CITIZENS
Salaries and wages to SC x 1.15
Conditions:
1. Employment continues for at least six months
2. Annual taxable income of SC does not exceed poverty level
Tax incentives for lawyers rendering pro-bono services
Allowable deduction:
Lower of:
(a) Amount that could have been collected
(b) 10% of GROSS INCOME derived from provision of legal services
(T/F) The required 60 hours assistance to indigent ligitants are allowed as deductions from gross income.
False.
Tax incentives for establishments participating in the dual training system
50% of system expenses paid to the accredited educational institution for its trainees.
Limits:
(1) 5% of establishment’s direct labor expense
(2) 25,000,000
Tax incentives for enterprises adopting productivity incentive programs under RA 6971
Additional deduction of 50% of total productivity bonuses given under the program
Additional deduction of 50% of total grants for manpower training and special studies given to RANK AND FILE EMPLOYEES
Donations to public schools
PRIORITY PROJECT:
Donation x 1.5
NONPRIORITY PROJECT:
Additional deduction - lower of:
(a) 5% of NI of corporation before charitable contributions
(b) Donation x 1.5
Deduction for employer’s PERA contribution
Amount to complete the maximum allowable PERA contribution of an employee
For overseas Filipino: P200,000 per year
For non-overseas Filipino: P100,000 per year
