ALLOWABLE DEDUCTIONS 3.

Between the grantor and fiduciary

-amount subtracted allowed at the option of the c) Taxes

taxpayer
- taxes proper only; national or local, must be
INDIVIDUAL incurred, connected with the taxpayer’s trade

ITEMIZED OSD PHHI Not deductible:

Mixed Income / / i. PH Income tax

Corporation / / ii. Estate and donor’s tax

Compensation */ iii. VAT

iv. Penalties/Surcharges

OSD - allowed to individual taxpayers except NRA; v. Special Assessment

not required to file ITR
vi. Income taxes imposed by foreign country
*Individual - 40% of gross sales
Deductible:
*Corporation - 40% of gross income
i. Import /Customs duties

ii. Excise taxes

Itemized Deductions - listing; appears in the income
iii. Occupational/Professional Tax
statement; those who can claim OSD can also claim
itemized iv. Documentary stamp tax
a) Expenses v. Privileges & License taxes
a) Ordinary - regularly; necessary - needed vi. Business Taxes - percentage tax
b) Amount must be reasonable vii. Local/business/municipal taxes
c) Directly attributable viii. Vehicle registration fees
d) Incurred and paid d) Losses
i. Capital expenditure - current and future -total loss - BV of loss asset
ii. Revenue expenditure - current -partial loss - BV of the asset at the time of loss vs.
replacement cost *LOWER
-EAR (Entertainment, Amusement, Recreation)
*deduct scrap value and recoverable
-ceiling:
amount from insurance if there is any
-0.50% of net sales - engaged in sales of
a) Actually sustained during the taxable year
goods
b) Loss must be that of the taxpayer
-1% of net income - exercise of profession
c) Not compensated for by insurance or other
b) Interest
forms of indemnity
a) Subject to limitation 33% of interest income of
d) Declaration of loss must be submitted in not
loan deposited
less than 30 days nor more than 90 days of
b) In full amount discovery of such loss

a) Interest on Unpaid Taxes/ Interest on Tax i. Business losses and losses from theft
Deliquency
ii. Casualty losses
i. Interest payment on script(liab) dividend
iii. NOLCO
ii. Interest payment on deposits
iv. Other types of losses
iii. Interest payment on bonds
e) Bad debts
c) Non deductible
- debts arising from worthlessness or
i. Cash basis uncollectibility

ii. Related taxpayer a) Must be an existing debt; valid, legal &

demandable
1. Between family members
b) Must be ascertain to be worthless
2. Between Individuals who owns more
than 50% of OS f) Depreciation
 -straight line

g) Depletion

-same as depreciation; on wasting assets or

natural resources

h) Charitable/other contribution

-limitations; Individual - 10%

Corporation - 5%

*based on income before contribution; limitation

vs. actual *LOWER = deductible amount

a) Deductible in Full

i. Donations to PH Govt for specific

purposes (education, health, youth,
sports dev., human settlements, science,
culture, economic development

ii. To foreign insitutions

iii. To NGOs

iv. Special Laws

v. Red Cross

b) Subject to Limitations

i. For public purposes

ii. Domestic corp. For religious, charitable,

scientific, youth, sport development, cultural,
rehab of veterans, to NGO’s

c) Non deductible

i) Research and development

a) Outright expense

b) Capitalized cost - 5years or 60 months

j) Pension trust

If Current pension contribution - deductible in full

Past pension contribution - divide by 10 yrs

k) *PHHI