Allowable deductions

Expenses Ordinary and Necessary Trade, Business

or Professional Expenses.

A reasonable allowance
a) for salaries, wages, and other forms of
compensation for personal services
actually rendered, including the
grossed-up monetary value of fringe
benefit furnished or granted by the
employer to the employee;
b) for travel expenses, here and abroad,
while away from home in the pursuit of
trade, business or profession;
c) for rentals and/or other payments
which are required as a condition for
the continued use or possession, for
purposes of the trade, business or
profession, of property to which the
taxpayer has not taken or is not taking
title;
d) or entertainment, amusement and
recreation expenses during the taxable
year, that are directly connected to the
development, management and
operation of the trade, business or
profession of the taxpayer, or that are
directly related to or in furtherance of
the conduct of his or its trade, business
or exercise of a profession

Note: No deduction from gross income shall

be allowed under Subsection (A) hereof
unless the taxpayer shall substantiate with
sufficient evidence, such as official receipts or
other adequate records: (i) the amount of the
expense being deducted, and (ii) the direct
connection or relation of the expense being
deducted to the development, management,
operation and/or conduct of the trade,
business or profession of the taxpayer.

2) Interest The amount of interest paid or incurred

within a taxable year on indebtedness in
connection with the taxpayer's profession,
trade or business shall be allowed as
deduction from gross income:

Provided, however, That the taxpayer's

otherwise allowable deduction for interest
 expense shall be reduced by forty-two percent
(42%) of the interest income subjected to final
tax:

Provided, That effective January 1, 2009, the

percentage shall be thirty-three percent
(33%).

3) Taxes Taxes paid or incurred within the taxable

year in connection with the taxpayer's
profession, trade or business, shall be
allowed as deduction, except:

(a) The income tax provided for under this

Title;

(b) Income taxes imposed by authority of any

foreign country;

(c) Estate and donor's taxes; and

(d) Taxes assessed against local benefits of a

kind tending to increase the value of the
property assessed.

4) Losses which are:

(a) If incurred in trade, profession or business;

(b) Of property connected with the trade,

business or profession, if the loss arises from
fires, storms, shipwreck, or other casualties, or
from robbery, theft or embezzlement.

5) Wagering Losses allowed only to the extent of the gains from

such transactions.

6) Losses from Wash Sales of Stock or which are NOT sustained from any sale or
Securities other disposition of shares of stock or
securities where it appears that within a period
beginning thirty (30) days before the date of
such sale or disposition, and ending thirty (30)
days after such date, the taxpayer has
acquired, or has entered into a contact or
option so to acquire, substantially identical
stock or securities.
7) Net Operating Loss of the business or which had not been previously offset as
enterprise for any taxable year immediately deduction from gross income shall be carried
preceding the current taxable year over as a deduction from gross income for the
next three (3) consecutive taxable years
immediately following the year of such loss.

8) Abandonment Losses of accumulated which pertains only to contract area where

exploration development expenditures petroleum operations are undertaken is
partially or wholly abandoned.
9) Bad Debts. - due to the taxpayer actually ascertained to be
worthless and charged off within the taxable
year connected with profession, trade or
business.

10) Depreciation. only from a reasonable allowance for the

exhaustion, wear and tear (including
reasonable allowance for obsolescence) of
property used in the trade or business.

11) Depletion of Oil and Gas Wells and which are granted under rules and regulations
Mines. to be prescribed by the Secretary of finance,
upon recommendation of the Commissioner.

12) Depletion of Oil and Gas Wells and which shall be authorized only in respect to oil
Mines Deductible by a Nonresident Alien and gas wells or mines located within the
individual or Foreign Corporation Philippines.

13) Net Income for Mining Operations Only those which are necessary or related to
mining operations.

14) Charitable and Other Contributions. Specifically:

a) Donations to the Government of the

Philippines or to any of its agencies or
political subdivisions, including fully-owned
government corporations, exclusively to
finance, to provide for, or to be used in
undertaking priority activities in education,
health, youth and sports development, human
settlements, science and culture, and in
economic development according to a
National Priority Plan determined by the
National Economic and Development
Authority (NEDA);

b) Donations to foreign institutions or

international organizations (which are fully
deductible) provided it is in pursuance of or in
compliance with agreements, treaties, or
 commitments entered into by the Government
of the Philippines and the foreign institutions
or international organizations;

c) Donations to Accredited
Nongovernment Organizations which
means a non-profit domestic corporation

15) Research and Development.
which are paid or incurred by him during the
taxable year in connection with his trade,
business or profession as ordinary and
necessary expenses which are not chargeable
to capital account.

16) Amortization of Certain Research and Only:

Development Expenditures.
At the election of the taxpayer and in
accordance with the rules and regulations to
be prescribed by the Secretary of Finance,
upon recommendation of the Commissioner,
the following research and development
expenditures may be treated as deferred
expenses:

(a) Paid or incurred by the taxpayer in

connection with his trade, business or
profession;

(b) Not treated as expenses under paragraph

(1) hereof; and

(c) Chargeable to capital account but not

chargeable to property of a character which is
subject to depreciation or depletion.

17) Pension Trusts. Applicable only to a reasonable amount

transferred or paid into such trust during the
taxable year in excess of such contributions,
but only if such amount:

(1) has not theretofore been allowed as a

deduction, and

(2) is apportioned in equal parts over a period

of ten (10) consecutive years beginning with
the year in which the transfer or payment is
made.
18) Optional Standard Deduction an amount not exceeding 40% of the gross
sales/receipts for individuals and gross
income for corporations.

Note: A General Professional Partnership

(GPP) may avail of the OSD only once.
19) Payments to foreign affiliates under
arm's-length terms, where the appropriate
WHTs are withheld and remitted.
Social security contributions up to the prescribed amount of maximum
mandatory contributions which is PHP 90,000.