Deductions From Gross Income

TYPES OF EXPENSES

Expenses in general
compensation payments

ORDINARY &
NECESSARY/REASON
ABLE

X
X

PAID DURING THE
TAXABLE YEAR

X
X

DIRECTLY
SUPPORTED BY
ATTRIBUTABLE TO
SUFFICIENT
TRADE/BUSINESS/PR
EVIDENCE (
OFESSION
SUBSTANTIATION
(dev,mgt,op and
RULE)
conduct)
X
X
X
X

Travelling expnenses (transpo, lodging and meals, laundry and other X
incidentals)

X

Rentals and/or other payments

X

X

Entertainment, amusement and recreation expenses

X

X

x

x

Bribes(gift or emolument used corruptly to influence public official or X
action), Kickbacks (consideration,usually a bribe given to someone in
a position for the grant of a privilege/power, etc) and other similar
payments
Senior citizens(SCs are aged 60 yrs or above and may apply to those
with "dual citizenships" provided citizenship is proved and a resident
for at least 6 months) discounts and compensation
a. 20% discount to SC

b. 15% special deductions on salaries of SCs

X

NOT AGAINST
LAMOCPOP

X
X

X

TYPES OF EXPENSES

sales discounts on Persons with disability (PWD - individual suffering
from restriction or different abilities as a result of mental, physical or
sensory impairment to perform an activity in a manner or within the
range considered normal for a human being, both physical and
mental and limits physiological, psychological, anatomical functions)
sales discounts on Persons with disability as special deduction
interests (compensation for the use or forbearance or detention of
money, regardless od the name it is called or denominated)

1. optional treatment of interest (capitalized (forms part of dpn
or as deduction(see above))
2. non deductible interest (for interest paid in advance or
taxpayer under cash basis(but allowed when the interest was actually
paid))
taxes (does not include surcharges, penalties and fines)

1. tax credit/deduction from foreign taxes paid (available only
for - resident citizens, domestic corp, gpp, beneficiaries of estates or
trusts)
expenses not deductible from gross income
a. Personal, living and family expenses
b. amounts paid out for new building or for permanent
improvements - capitalized instead of treated as expense

ORDINARY &
NECESSARY/REASON
ABLE

PAID DURING THE
TAXABLE YEAR

DIRECTLY
ATTRIBUTABLE TO
TRADE/BUSINESS/PR
OFESSION
(dev,mgt,op and
conduct)

x

SUPPORTED BY
SUFFICIENT
EVIDENCE (
SUBSTANTIATION
RULE)
x

x

x

NOT AGAINST
LAMOCPOP

TYPES OF EXPENSES

c. any amount expended in restoring property or making good that
which has been exhausted.
d. premiums on life insurance policy covering the life of any official
or employee or of any person financially interested in any trade or
business carried on by the tax payer - individual or coporate, WHEN
THE TAXPAYER IS DIRECTLY, INDIRECTLY a beneficiary under such
policy
Contributions to Govt or any of its political subdivisions, foreign
institutions or internation organizations based on treaty, accredited
NGOs)

Losses

Bad Debts

ORDINARY &
NECESSARY/REASON
ABLE

PAID DURING THE
TAXABLE YEAR

DIRECTLY
ATTRIBUTABLE TO
TRADE/BUSINESS/PR
OFESSION
(dev,mgt,op and
conduct)

SUPPORTED BY
SUFFICIENT
EVIDENCE (
SUBSTANTIATION
RULE)

NOT AGAINST
LAMOCPOP

TYPES OF EXPENSES

Depreciation

Depletion

ORDINARY &
NECESSARY/REASON
ABLE

PAID DURING THE
TAXABLE YEAR

DIRECTLY
ATTRIBUTABLE TO
TRADE/BUSINESS/PR
OFESSION
(dev,mgt,op and
conduct)

SUPPORTED BY
SUFFICIENT
EVIDENCE (
SUBSTANTIATION
RULE)

NOT AGAINST
LAMOCPOP

OTHERS

includes fringe benefits (grossedup and FBT has been
paid)
INCURRED WHILE AWAY FROM HOME
(LOCATION OF PLACE OF BUSINESS AND NOT FAMILY
RESIDENCE) OTHERWISE CHARGED AS
TRANSPORTATION EXPENSE
TAXPAYER HAS NOT TAKEN TITLE OR EQUITY OTHER
THAN LESSEE, USER OR POSSESSOR
MUST NOT HAVE BEEN PAID DIRECTLY TO THE OFFICIAL
AS A BRIBE, KICKBACK ETC
WITHHOLDING TAXES HAVE BEEN PAID
NOT EXCEED THE CEILING OF 1/2 % OF NET SALES OR
1% OF NET REVENUE OR APPORTIONMENT FORMULA
(PROP OF ns/nr x actual exp)
NOT allowed as deduction for direct or indirect
payment to govt official of NGS, GOCCs, foreign govt,
corps, gpp or similar entities, exception if ordinary,
necessary and reasonable (cir vs sullivan)

actually and exclusively used, consumed or enjoyed by
SCs
selling price and sales disc is indicated separately in
OR/SI
only actual amount granted and not exceeding 20% of
SP
employment continue for at least 6 months,
annual taxable income does not exceed the poverty
level

OTHERS

20% discount relative to sale of goods and services
which is deducted from gross income after CGS.
actually and exclusively used, consumed or enjoyed by
PWD

there must be indebtedness of the taxpayer
not made between related parties/taxpayers
there must be legal liability to pay interest
interest is stipulated in writing
DEDUCTION must be reduced by 33% of interest
income (net of Final Tax)
INTEREST on unpaid business related taxes is not
subject to limitation on deduction

taxes previously deducted and refunded shall be
included as part of gross income
exception:
1. income tax
2. foreign income tax claimed as tax credit
3. estate and donors taxes
4. taxes assess against local benefits(tending to
increase value of property)
NI(per foreign country)/total net incomexPH income
tax OR NI from all foreign countries/total NI x PH tax

OTHERS

NI of NGO must not inure to the benefir of any private
individual, utlized not later than the 15 day of the 3rd
month following the close of its taxable year, admin
expenses must conform to rules and regs of sec of
finance, upon recom of commissioner - but not to
exceed 30% , upon dissolution assets are transferred to
another NGO

OTHERS