Chapter 13-B

SPECIAL ALLOWABLE ITEMIZED DEDUCTIONS & NET OPERATING LOSS CARRY- OVER
(NOLCO)

Deduction incentives

 additional or bonus deductions with no actual cash outlay given by law as rewards for taxpayers

Special Deductions

 not actual expenses; may or may not involve cash outlay but are mandated by law as deductible
against gross income

Special Expenses under NIRC and Special Laws

1. Income distribution from a taxable estate or trust

 Estate- tax ng property na iniwan ng namatay, may separate tax which is “estate tax”
 Ung property ng deceased nagkaka income- matatax mag-isa ung estate.
 Income distribution- pwede sa mga heiress, pwedeng gawing expense ng estate
2. Transfer to reserve fund and payments to policies and annuity contract of insurance
companies
3. Dividend distribution of a Real Estate Investment Trust (REIT) under RA 9856
 REIT- 90% of income should be distributed to the stockholders, pwede maging special
deductions
4. Transfer to reserves funds of taxable cooperatives
 Same as #2; Transfer thru reserve fund (may paglipat ng fund- di na taxable, magiging
deduction na sya)
 There is an actual outflow or transfer ng cash
5. Discounts to senior citizens (20% discount)
6. Discounts to persons with disability under RA 9442 (20% discount)

Deduction Incentives under Special Laws (no actual expenses; incentives sa mga businesses)

1. Additional compensation expense for senior citizen employees under RA 9257

 Equivalent to 15%

Regular deduction (salaries expense) 10,000

Special deduction (10,000 x 15%) 1,500
Total expenses 11,500

2. Additional compensation expense for persons with disability (PWD) under RA 7277,
amended by RA 9442
 Equivalent to 25%
 Regular deduction (100%)
 Special deduction (25%)
3. Additional deduction for facilities improvements made for PWDs in accordance with RA
7277, as amended by RA 9442
 Equivalent to 50% of the direct costs of the improvements/modifications
 Regular deduction (100%)
 Special deduction (50%)

4. Additional training expense under RA 8502 - Jewelry Industry Development Act of 1998
 Equivalent to 50%

Regular deduction (training expense) 10,000

Special deduction (10,000 x 50%) 5,000
Total expenses 15,000

5. Additional labor training expense under the CREATE Law RA 11534

 Equivalent to 50%
 The amount shall not exceed 10% of direct labor wage-- whichever is lower
 Regular deduction (100%)
 Special deduction (50%)

6. Additional contribution expense under the Adopt-a-School program under RA 8525

 50% of the contributions
 Any government school (public) in all levels
 Regular deduction (100%)
 Special deduction (50%)

7. Additional deductions under the Expanded Breastfeeding Promotion Act under RA 7600
 Full 100%
 Regular deduction (100%) is subject to depreciation.

8. Additional deductions for free legal assistance, expense under RA 9999

 Full 100%; actual free services or 10% of gross income -> whichever is lower
 One expense only

9. Additional productivity incentive bonus expense under RA 6971

 50% of the total productivity bonuses
 Regular deduction (100%)
 Special deduction (50%)
 In addition, business enterprises providing manpower training and special studies to
rank-and-file employees
 50% addt’l deduction of the total grant for local trainings and special studies
 Chapter 13-C

OPTIONAL STANDARD DEDUCTION