Read Revenue Regulations No.

8-2018
 Implementing the Income Tax Provisions of RA No. 10963 (TRAIn Law)

STUDY THE OTHER IMPORTANT PROVISIONS OF THE NIRC

ABC TRADING CORPORATION

Income Statement
For the year Ended December 31, 2022

Sales P xxxxx
Less – Sales returns and allowances xx
______
Net Sales xxxxx
Less- Cost of Sales:
Inventory beginning (Section 41) P xxxx
Add- Purchases xxxx
_____
Total Goods available for sale xxxx
Less- Inventory end (Section 41) xxx xxxx
____ _____
Gross income (Section 27[A] 7th par) P xxx
Less- Allowable Deductions:
Rental expenses (Section 34[A]) xxx
Salaries and benefits (Section 34[A]) xxx
Advertising expenses (Section 34[A]) xxx
Delivery expenses (Section 34[A]) xxx
Repairs and maintenance (Section 34[A]) xxx
Fuel expenses (Section 34[A]) xxx
Travel expenses (Section 34[A]) xxx
Representation expenses(Section 34[A]) xxx
Meetings, trainings and seminars(Section 34[A]) xxx
Litigation expenses (Section 34[A]) xxx
Insurance premiums (Section 34[A]) xxx
Light and water expenses (Section 34[A]) xxx
Communication expenses (Section 34[A]) xxx
Interest expense (Section 34[B]) xxx
Taxes and licenses(Section 34[C]) xxx
Losses (Section 34[D]) xxx
Bad debts (Section 34[E]) xxx
Depreciation (Section 34[F]) xxx
Contributions/donations (Section 34[H]) xxx
Research and development (Section 34[I]) xxx xxxx
_____ _____
Net income P xxx
=====
Please take note and study the following:

ALLOWABLE DEDUCTIONS:
1. This is sample income statement showing the itemized deductions. Study
the limitations and requisites of each of the itemized deductions under
Section 34 of the NIRC.
2. Read Section 27(A) thoroughly and you will discover that there is difference
in the determination of the gross income for trading business,
manufacturing and service businesses.
3. The term gross income is defined in Section 27 (A), Section 27(E) (4). In
Section 31, the taxable income may also refer to the gross amount when
deductions are not allowed. (Analyze these provisions carefully)
4. Compare the itemized deductions and Optional Standard Deduction ( Section
34[L]).
5. What are the advantages and disadvantages of itemized deductions and
OSD?
6. May individual taxpayers, Corporations and General Professional
Partnerships avail of OSD? What are the conditions for the availment of
OSD?
7. What are the conditions for expenses to be allowed as deduction from
gross income?
8. When would an expense be considered ordinary? When is it necessary?
9. Why are bribes, kickbacks and other similar payments not allowed as
deductions from the gross income of any taxpayer?
10. What are the limitations for Entertainment, Amusement and Recreation
expenses as deductions from gross income. Read RR No. 10-2002.
11. Special treatment of particular expenses allowable to private educational
institutions. (Section 34(A)(2))
12. What is arbitrage scheme in relation to interest expense under Section
34(B)? Read RR No. 13-2000
13. Are tax refunds subject to income tax?
14. Are the VAT payments of the taxpayers deductible from their gross income
for income tax purposes?
15. What is the meaning of “tax benefit rule” as applied to Section 34(C) of the
Tax code?
16. Are the following tax payments of the taxpayers deductible from their gross
income:
a) Percentage taxes
b) Documentary stamp taxes
c) Real property taxes
d) Local business taxes
e) Excise taxes
f) Income taxes
g) Estate Taxes
h) Donor’s Taxes
17. What are the different kinds of losses?
18. What is Net Operating Loss Carry-Over (NOLCO)? Read Revenue Regulations No.
14-2001.
19. Is mere allowance for bad debts deductible from gross income? (Section
34[E]). Read revenue Regulations No. 5-1999 and RR No. 25-2002
 20. Tax Benefit rule as applied to Bad Debts. (Section 34(E))
21. What are the methods of depreciation?
22. What is the purpose of allowing depreciation expense as deduction from
gross income?
23. What are the conditions for depreciation to be allowed as deduction from
gross income? Read RR No. 12-2012 for depreciation on vehicles.
24. What are fully deductible and not fully deductible Charitable and other
Contributions from gross income? Are the limits for individual and
corporate taxpayers the same?
25. Res3earch and development (Section 34(I))
26. Pension Trusts (Section 34(J))
27. ADDITIONAL Requirements (Section 34(K))
28. What are the non-allowable items as deductions from gross income?
(Section 36)
29. What is “Wash Sale Transaction”? (Section 38)

CAPITAL GAINS AND LOSSES

30. What are considered as “Capital Assets”? (Section 30[A])
31. What is the meaning of the terms “Net Capital Gains’ and ‘Net Capital
Loss’?
32. Limitations on capital losses. Are corporations allowed capital losses as
deductions?
33. Net Capital Loss Carry-over
34. Take note that the rules are different if the capital asset is a real property.

DETERMINATION OF AMOUNT AND RECOGNITION OF GAINS OR LOSS

35. Computation of gain or loss (Section 40)
36. Basis for determining Gain or Loss from sale or disposition of property.
37. Exchange of Property. General Rule (Section 40(C)(1)
38. Exception under Section 40(C)(2). Take note of the last par. Read also the
amendments brought about by the CREATE LAW (RA No. 11534). No MORE
Ruling from the BIR is required. This transaction is also exempt from the
Documentary Stamp Tax imposed under Section 196 (See RA No. 9243 as
implemented by RR. No. 13-2004). However, the transaction is subject to DST on
the original issuance of shares of stocks imposed under Section 175.

SOURCES OF INCOME
39. Gross income from sources within the Philippines (Section 42(A))
40. Taxable income from sources within the Philippines (Section 42(B))
41. Gross income gross sources without the Philippines (Section 42(C))
42. Taxable income from sources without the Philippines (Section 42(D))
43. Income sources partly within and partly without the Philippines (Section 40(E))

ACCOUNTING PERIODS AND METHODS OF ACCOUNTING

44. General rule (Section 43)
45. Period in which items of gross income included (Section 44)
46. Periods in which deductions and credits are taken. (Section 45)
47. Change of accounting Period. Is this applicable to individual taxpayers?
(Section 46)
48. Final or adjustment returns for a period of less than 12 months (Short
period returns) (Section 47)
 49. Accounting of long-term contracts. (Section 48)
50. Installment sales (Section 49)
51. Allocation of Income and Deductions (Section 50)

RETURNS AND PAYMENT OF TAX

52. Individual Returns
 Who are the individual taxpayers required to file Income Tax Returns
(ITRs)
 Who are those individuals not required to file ITRs?
 What is ‘Substituted Filing’?
53. When and where should individual taxpayers file their ITRs? (Section 51 (B) and
(C))
54. Husband and wife. How should they file their ITRs, jointly or separately?
(Section 51(D))
55. Returns of parents should include income of children (Section 51(E))
56. Persons under disability. (Section 51(F))
57. Signature presumed correct (Section 51(G)
58. Corporation Returns (Section 52)
59. Extension of time to file returns (Section 53)
60. Returns of Receivers, Trustees in Bankruptcy or assignees (Section 54)
61. Returns of General Professional Partnerships (GPPs) (Section 55)
62. Payment and assessment of Income Tax for Individuals and Corporations
(Section 56)
A)(1) In general
(2)) Installment payment (who are allowed)
(3) Payment of Capital Gains Tax
B) Assessment and Payment of Deficiency tax
63. Withholding Tax at Source (Section 57)
64. Withholding Creditable Tax at Source Section (Section 58)
65. Registration with Register of Deeds (Section 58(E))

ESTATES AND TRUSTS

66. Application of Tax (Section 60)
67. Taxable income (Section 61)
68. Revocable trusts (Section 63)
69. Income for benefit of grantor (Section 64)
70. Fiduciary returns (Section 65)
71. Fiduciaries indemnified against claims for taxes paid (Section 66)

OTHER INCOME TAX REQUIREMENTS

72. Collection of foreign payments (Section 67)
73. Information at source as to income payments (Section 68)
74. Returns of foreign corporations (Section 69)
75. Disposition of Income Tax Returns, Publication of Lists of Taxpayers and
filers (Section 70)
76. Suit to Recover tax based on False or Fraudulent Returns (Section 71)
77. Distribution of Dividends or Assets by corporations (Section 73)
A) Definition of dividends
B) Stock dividends
C) Dividends distributed are deemed constructively received from the most
recently accumulated profits.
 D) Net income of a Partnership Deemed constructively received by the
partners.

QUARTERLY CORPORATE INCOME TAX ANNUAL DECLARATION AND PAYMENTS

78. Declaration of Income Tax for Individuals (Section 74)
A) In general
B) Return and payment of estimated income tax by individuals
C) Definition of estimated tax
79. Declaration of Quarterly Corporate Income Tax (Section 75)
80. Final Adjustment Return (Section 76)
81. Place and Time of filing and payment of Quarterly Corporate Income Tax
(Section 77)

WITHHOLDING ON WAGES
82. Definitions (Section 78)
83. Withholding Tax collected at source (Section 79)
84. Liability for tax (Section 80)
85. Filing of Return and payment of Taxes Withheld (Section 81)
86. Return and payment in case of Government (Section 82)
87. Statements and Returns (Section 83)