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Regular Allowable Itemized Deductions

The document discusses various itemized deductions that can be claimed on taxes including bad debts, interest expense, taxes, charitable contributions, losses, depreciation, depletion, development costs, expenses, pensions/trusts, and health/life insurance. It provides details on the requirements and limitations for claiming deductions for bad debts and interest expense, such as the debt needing to be worthless and connected to a business for bad debts.

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Armi Milanes
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1K views

Regular Allowable Itemized Deductions

The document discusses various itemized deductions that can be claimed on taxes including bad debts, interest expense, taxes, charitable contributions, losses, depreciation, depletion, development costs, expenses, pensions/trusts, and health/life insurance. It provides details on the requirements and limitations for claiming deductions for bad debts and interest expense, such as the debt needing to be worthless and connected to a business for bad debts.

Uploaded by

Armi Milanes
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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REGULAR

ALLOWABLE
ITEMIZED
DEDUCTIONS
Instructor: Mary Armi Milanes
Itemized • Bad Debts
• Interest Expense
Deductions • Taxes

of Gross • Charitable and other contributions


• Losses

Income • Depreciation

(BITCLoD3EP2) • Depletion
• Development Costs and Research
• Expenses in General (Other ordinary and necessary
trade, business and professional expenses)
• Pensions and trusts
• Premium health and/or insurance (for individual
taxpayer only)
Bad Debts Requisites for deduction
1. There must be valid and subsisting debt.
2. It must be connected with the trade, profession or
business.
3. The debt is ascertained to be worthless.
4. It must be charged off within the taxable year.
Non-deductible Bad Debts
5. Those sustained in a transaction entered into by related
taxpayers
Recovery of bad debt previously deducted
6. Taxable if the deduction of bad debt resulted in income
tax benefit to the taxpayer.
7. Not Taxable if deduction did not result in income tax
benefit to the taxpayer.
Which of the following is wrong?

a) A deduction for bad debt is not available


when a provision for it is made.
b) A deduction for bad debt is available only
when a write off is made.
c) There is no deduction for bad debt when
there is a surety for the debtor against
whom collection may be enforced.
d) A deduction for uncollectible account is
available to a taxpayer whether he is on
cash or accrual method of accounting.
Which of the following is wrong?

a) A deduction for bad debt is not available


when a provision for it is made.
b) A deduction for bad debt is available only
when a write off is made.
c) There is no deduction for bad debt when
there is a surety for the debtor against
whom collection may be enforced.
d) A deduction for uncollectible account is
available to a taxpayer whether he is on
cash or accrual method of accounting.
Statement 1: In financial accounting,
bad debt is an expense in the books of
accounts when a provision is made for
it.

Statement 2: In income taxation, bad


debt is a deduction from gross income
when the account is written off.
Statement 1: In financial accounting,
bad debt is an expense in the books of
accounts when a provision is made for
it. TRUE

Statement 2: In income taxation, bad


debt is a deduction from gross income
when the account is written off. TRUE
Interest
Requisites for deduction
1. There should be an indebtedness.
2. There must be legal liability to pay interest.
3. The indebtedness must be incurred in connection with the taxpayer’s trade
profession or business.
4. The allowable deduction for interest expense shall be reduced by an amount
equal to the following percentages of the interest income subject to final tax,
beginning:
November 1, 2005 -42%
January 1, 2009 -33%

Non-deductible Interest
1. Interest paid in advance through discount on indebtedness incurred by an
individual taxpayer reporting income under cash basis. Such interest shall be
allowed as deduction in the taxable year that the indebtedness is paid. If
indebtedness is payable in installments , the amount of interest which
corresponds to the amount of the amortized principal shall be allowed as
deduction in the year paid.
2. If the taxpayer is the person to whom the interest payment has been made are
related to each other.
3. If indebtedness is incurred to finance petroleum exploration
Interest Optional treatment of Interest Expense
At the option of the taxpayer, interest incurred to acquire
property used in trade, business or exercise of a
profession may be allowed as outright deduction or
treated as capital expenditure.

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