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Chapter 13 Principles of Deductions

This document discusses principles of deductions from gross income for business taxation purposes. It defines what constitutes a business and outlines the differences between business expenses and personal expenses. It also categorizes expenses as either capital expenditures or deductible expenses. The document provides rules on deducting various capital expenditures and outlines general principles of deduction, tax reporting classifications, and modes of claiming deductions.

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619 views

Chapter 13 Principles of Deductions

This document discusses principles of deductions from gross income for business taxation purposes. It defines what constitutes a business and outlines the differences between business expenses and personal expenses. It also categorizes expenses as either capital expenditures or deductible expenses. The document provides rules on deducting various capital expenditures and outlines general principles of deduction, tax reporting classifications, and modes of claiming deductions.

Uploaded by

GIRL
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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TAX 5

INCOME TAXATION
MARIE STACY MARGARETT DIAZ, CPA, CAT, MST
Lecturer / Instructor
CHAPTER 13:
PRINCIPLES OF
DEDUCTION
What is business?
Business means habitual engagement in a commercial activity
involving the regular sale of goods and services to customers or
clients.

In taxation, the term business is generally used to include the


exercise of a profession.

Self-employment is a business but employment is not.


DEDUCTIONS FROM GROSS INCOME

Business Expense
Vs.
Personal Expense
DEDUCTIONS FROM GROSS INCOME

The 250,000 annual exemption in the


tax table for individuals is deemed in
lieu of all personal expenses of
individual taxpayers.
DEDUCTIONS FROM GROSS INCOME

Allocation of
COMMON EXPENSES
DEDUCTIONS FROM GROSS INCOME

EXPENSES
VS.
CAPITAL EXPENDITURES
DEDUCTIONS FROM GROSS INCOME
CAPITAL
EXPENSES EXPENDITURES
O Salaries and wages O Property, plant and equipment
O Utilities O Inventory
O Selling Expenses O Investments
O Rent O Prepayments
O Local tax and permits O Rentals on Capital Lease that
transfers ownership
Rules on Deducting Capital Expenditures
1. Non-Depreciable asset 3. Intangible assets
O Deductible against selling price O Amortized over lower of legal /
when sold expected life.
2. Depreciable properties 4. Inventory
O Straight line method O Inventory method
O Sum of the years digits O POS
O Declining balance method 5. Prepaid Expenses
O Other methods prescribed by O Deducted as they expire
Secretary of Finance upon
recommendation by the CIR.
SPECIAL CONSIDERATIONS
O Property repairs and improvements
O Property acquisition-related costs
O Security issue cost
O Manufacturing expenses
O Effects of accounting methods
O Effects of Value Added Tax
GENERAL PRINCIPLES OF DEDUCTION
1. Legitimate, Ordinary, Actual and Necessary
(LOAN)
2. The Matching Principle
3. The Related Party Rule
4. The Withholding Rule
TAX REPORTING CLASSIFICATION
1. Cost of sales or cost of services
2. Regular allowable itemized deductions
3. Special allowable itemized deductions
O Actual expense and deduction incentives

4. Net Operating Loss Carry Over (NOLCO)


O Allowed by law to be deducted against net income of the
following three (3) years.
MODE OF CLAIMING DEDUCTIONS
1. Itemized deductions
2. Optional standard deductions
O In lieu of itemized deductions, regular or special, including
NOLCO.

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