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BLEIZEL D.

TEODOSIO LAW III-B


Requisites for deductibility of the following specific expenses:

I. ORDINARY AND NECESSARY EXPENSES


1. Expenses must be ordinary and necessary;
2. Must be paid or incurred w/in the taxable year;
3. Must be paid or incurred in carrying on the trade or business, or the exercise of profession
by the taxpayer, or attributable to the development, management or operation of the trade,
business, or profession;
4. Must be substantiated with official receipts or other adequate records.
5. If subject to withholding taxes proof of payment to the Bureau of Internal Revenue must
be shown.
6. Amount must be reasonable;
7. Must be legitimately paid and not be contrary to law, public policy or morals.
A. Salaries
1. Services actually rendered
2. Compensation is for such services rendered
3. Reasonable
B. Travelling Expenses
1. Reasonable and necessary expenses
2. Incurred or paid while away from home
3. In pursuit of trade or business.
C. Rental Expenses
1. Rental must be ordinary and necessary
2. It must have been paid or incurred during the taxable year
3. It must be paid or incurred in carrying trade or business of the taxpayer or practice
of profession
4. It must be supported by official receipts, records or other pertinent papers
5. It is required as a condition for the continued use or possession of the property
being leased
6. The taxpayer has not taken or is not taking title to the property or has no equity of
the property being leased
7. Rentals should be subject to the expanded withholding tax of 5% of the rental
charge, net of VAT, if any
D. Entertainment
1. It must be paid or incurred during the taxable year
2. The amount must be reasonable
3. It must be:
i. directly connected to the development, management and operation of the
trade, business or profession of the taxpayer; or
ii. directly related to or in furtherance of the conduct of his or its trade,
business or exercise of a profession.
4. It must not be contrary to lawm morals, good customs, public policy, or public
order
5. It must not have been paid, directly or indirectly, to an official employee of the
national government, or any local government unit, or of any government-owned
or controlled corporation, or of a foreign government, or to a private individual,
or corporation, or of general professional partnership, or a similar entity, if it
constitutes a bribe, kickback or other similar payments
6. IT must not exceed the ceiling of 0.05% of net sales for sellers of goods or
properties or 1% of net revenues for sellers of services
7. It must be duly substantiated by adequate proof. The official receipts, or
invoices, or bills or statements of accounts should be in the name of the taxpayer
claiming the deduction
8. The appropriate amount of withholding tax, if applicable should have been
withheld therefrom and paid to the BIR.

A. INTEREST
1. There must be an indebtedness;
2. There should be an interest expense paid or incurred upon such indebtedness during the
taxable year;
3. The indebtedness must be that of the taxpayer;
4. The indebtedness must be connected with the taxpayer's trade, business or exercise of
profession;
5. The indebtedness must be connected with the taxpayer’s trade, business or exercise of
profession;
6. The interest must have been stipulated in writing;
7. The interest must be legally due;
8. The interest arrangement must not be between related taxpayers;
9. The interest must not be incurred to finance petroleum operations; and
10. In case of interest incurred to acquire property used in trade, business or exercise of
profession, the same, was not treated as a capital expenditure.
11. The interest is not expressly disallowed by law to be deducted from gross income of the
taxpayer.

B. TAXES
1. Taxes must be paid or incurred in connection with the taxpayer’s trade or business or
exercise of profession;
2. Tax must be imposed by law on, and payable by taxpayer (direct tax);
3. Paid or incurred during the taxable year.
4. Taxes must be duly substantiated by Official Receipts.

D. LOSSES
1. Actually sustained during the taxable year
2. Connected with the trade, business or profession
3. Evidenced by a close and completed transaction
4. Not compensated for by insurance or other form of indemnity
5. Not claimed as a deduction for estate tax purposes
6. Notice of loss must be filed with the Bureau of Internal Revenue within 45 days from the
date of discovery of the casualty or robbery, theft or embezzlement.

E. BAD DEBTS
1. Existing indebtedness due to the taxpayer which must be valid and legally demandable;
2. Connected with the taxpayer's trade, business or practice of profession;
3. Must not be sustained in a transaction entered into between related parties;
4. Actually ascertained to be worthless and uncollectible as of the end of the taxable year.;
and
5. Actually charged off in the books of accounts of the taxpayer as of the end of the taxable
year.

F. DEPRECIATION
1. The allowance for depreciation must be reasonable.
2. It must be for property use or employment in trade or business or out of its not being used
temporarily during the year.
3. The allowance must be charged off within the taxable, year.
4. Schedule on the allowance must be attached to the return.

G. CHARITABLE AND OTHER CONTRIBUTIONS


1. The contribution or gift must be actually paid.
2. It must be given to the organizations specified in the code.
3. The net income of the institution must not inure to the benefit of any private stockholder or
individual.

H. PENSION TRUST CONTRIBUTIONS


1. The employer must have established a pension or retirement plan to provide for the
payment of reasonable pensions to his employees;
2. The pension plan is reasonable and actuarially sound;
3. It must be funded by the employer;
4. The amount contributed must be no longer subject to the control and disposition of the
employer;
5. The payment has not yet been allowed as a deduction; and
6. The deduction is apportioned in equal parts over a period of 10 consecutive years
beginning with the year in which the transfer or payment is made.

K. PREMIUM PAYMENTS ON HEALTH AND/OR HOSPITALIZATION


INSURANCE
1. Insurance must have actually been taken
2. The amount of premium deductible does not exceed P2,400 per family
or P200 per month during the taxable ear.
3. That said family has a gross income of not more than P250,000 for the
taxable year.
4. In case of married individual, only the spouse claiming additional exemption shall be
entitled to this deduction.