October 2018 DEDUCTIONS By: Atty. C. Llamado DEDUCTIONS Amounts allowed to be subtracted from Gross Income to arrive at taxable income in the ITR. ‘Taxpayers may choose NOT TO AVAIL of the deduction. If deductions are claimed, the burdes deductions rests upon the taxpayer. ‘with receipts and other evidences every item of Kinds of Deductions: in of proving the legality and correctness of the “The taxpayer has the obligation to substantiate f deduction when required. BEFORE TRAIN a 7) Personal Exemptions (Basie and ‘Additional) (for individuals, and estates in year of decedent's death) 2) Income distributed to heirwbeneficiaries (for estates and trusts) 3) 720,000 special exemption (for estates after year of decedent's death, and for trusts) 14) Health and/or Hospitalization Insurance Premium (“H/H premium”) under Section 34 (MD) of the Tax Code. 5 Itemized Deductions ("ID") Or Optional Standard (“OSD”) Income distributed to heirs/beneficiaries (for estates and trsts) Itemized Deductions (“ID”) Or Optional ‘Standard (“OSD”) Notes: a) Individuals engaged in trade or business, ot profession can select the ID or the OSD, if they ae being taxed under the graduated rates. If they are taxed under the 8% tx regime, no deductions shall be available in computing their tax bases. » Individuals eaming compensation income are not allowed any deduction from their ) Estates and trusts can claim the ID or the OSD, ‘graduated rates. ) Domestic corporations, or OSD. only if they are taxed under the resident forelgn corporations, and partnerships can claim IDOctober 2018, ‘Summary of Allowable Deductions (BEFORE TRAIN) ‘Dadostion ata ‘aes [Tint Comp Parr THT SAE | prcecrm Deed [Win] Areas taxable | year year | ago iy eros a 3) Wa 3) Tacome dneibted oe Le ‘0 : ay Fesonldttion’ |G] o | © a exemption ESI 571 8 ‘Summary of Allowable Deductions (AFTER TRAIN) Dadoston indivi ois [Tre Compa | Parris BE | Seltemployed taxed under eaduned rates ‘ Dao | @ oe Te} 3s 2) Income disritated | eo le tobeinsteneiciaris |Optional Standard Deduction (OSD) OSD iis the deduction which can be taken in lieu of Itemized Deductions (both ordinary and special IDs), ‘Who may claim the OSD? 1) Eor individuals: a) Citizens; ') Resident aliens ©) Estates and trusts ‘Who compute their income tax under the ‘graduated rates. Amount of OSD = 40% of [Gross sales, net of returns, allowances, and discounts (accrual basis) + Other taxable income from ‘operations not subject to Fs) or 40% of [Gross receipts, net of returns, allowances, and discounts (cash basis) + Other taxable income fom ‘operations not subject to FTs) For individuals, OSD is in lieu of COGS (or COS) + the Itemized Deductions : i ie 2) Comporations: Only domestic corporations and |_| Subject to 30% of net taxabl resident foreign corporations income Amount of OSD = 40% of [Gross Income (GI)' + Other taxable income not subject to FTs) For corporations, OSD is in lieu of the Itemized Deductions only. Eisction of the OSD = Made in the 1* Quarterly Return. Failure by taxpayer to indicate OSD election in the 1* Quarterly Return means that texpayer is claiming IDs; + When made, itis irevocable for the entire year; = Failure to file the 1* Quarterly Return is equivalent to availing IDs for the year. " GI= Gross Sales — Sales Returns - Sales Allowances — Discounts - COGS ee.