MEMORY

MEMORYAID
AIDIN
INTAXATION
TAXATIONLAW
LAW

SAN BEDA COLLEGE OF LAW 2003 CENTRALIZED BAR OPERATIONS

SAN BEDA COLLEGE OF LAW 2003 CENTRALIZED BAR OPERATIONS
Reproduction in any form of this copy is strictly prohibited!!!
Reproduction in any form of this copy is strictly prohibited!!!

ANNEX D: KINDS OF BUSINESS EXPENSES

Compensation for
Personal Services

Traveling Expenses

Requisites for deductibility

Requisites for deductibility

Requisites for deductibility

1.
2.

Personal services actually rendered

Compensation paid is for such services
rendered.
Must be reasonable

1.
2.

Incurred or paid while away from home.

In the pursuit of trade or business.

1. Made as a condition to the continued use of, or

possession of property.
2. Taxpayer has not taken or is not taking title to the
property or has no equity other than that of a
lessee, user or possessor.
3. Property must be used in trade or business.
4. It is subjected to withholding tax of 5% otherwise it
shall be disallowed as a deduction.

3.

Entertainment, Amusement
And Recreation

Rentals

Requisites for deductibility

1.

2.
3.
4.
5.

1.
2.
3.
4.

Deductible
expenses
under
compensation for personal services

Salaries,
wages,
commissions,
professional fees, vacation-leave pay,
retirement pay and other compensation.
Bonuses are deductible expenses if
paid in-good faith as additional
compensation for services rendered.
Pensions and compensation for injuries,
if not compensated for by insurance or
otherwise.
Grossed-up monetary value (GMV) of
fringe benefit provided for, as long as
the final tax imposed has been paid.

Items considered as rental expense

1.

Where a leasehold is acquired for business

purposes for a specified sum, the purchaser may
take deduction for an aliquot part of such sum each
year based on the number of years the lease will
run.
Taxes and other obligations of the lessor paid by
the lessee under the contract of lease, constitutes
additional rent expense which the lessee
corporation may deduct from gross income.
The cost of leasehold improvements may be
recovered by the lessee over the remaining term of
the lease, or over the life of the improvements,
whichever period is shorter.

2.

3.

Expense is directly connected to the

development,
management
and
operation of the trade, business, or
profession of the taxpayer
Expense is directly related to or in
furtherance of the conduct of trade,
business, or profession
Expense is reasonable
Expense is not contrary to laws, morals
and public policy or public order.
It must be substantiated with sufficient
evidences such as official receipts or
adequate records.

Amounts

paid for the "right of occupancy"

sometimes called "goodwill", do not qualify as
rental deduction because they are in the nature of
capital advance to secure the lease of the premise it
is similar to a purchased goodwill.

D1
TAXATION LAW COMMITTEE: Chairperson: Rhodaline Regoso; Asst. Chairperson & EDP: Maricel Alisuag; Subject Heads:Junelet Mataro, Michelle Alvarez, Efren Dizon, Khan Guieb; Members: Alexis Cervantes. Leizl
Calimaran, Berna Quibal, Noreli De Claro, Jocelyn Gamboa, Albert Rodriguez, Karla Cabel, Joey Caraig, Rodolfo Quitolbo, Liam Pagdanganan, Paul Lawrence Lim, Alder Delloro, John Ivan Tablizo, Ria Ibaviosa, Pancho Vasquez, Aileen
Roxas, Leif Opia

MEMORY
MEMORYAID
AIDIN
INTAXATION
TAXATIONLAW
LAW

SAN BEDA COLLEGE OF LAW 2003 CENTRALIZED BAR OPERATIONS

SAN BEDA COLLEGE OF LAW 2003 CENTRALIZED BAR OPERATIONS
Reproduction in any form of this copy is strictly prohibited!!!
Reproduction in any form of this copy is strictly prohibited!!!

KINDS OF BUSINESS EXPENSES

Cost of Materials
And Supplies
Nature:

Repairs

Deductible only to the amount

actually consumed or used in
operation during the year.

Methods utilized to determine

materials used

1. Actual
consumption
(inventory method)
2. Direct purchase method.

method

Minor or ordinary repairs

Nature:

- deductible
from
gross
income because it keeps
the assets in its ordinary
working condition.

Those incurred .in the operation

of a farm for profit or commercial basis
and not merely for recreation or
pleasure.

Major
repairs

or

extraordinary

- are not deductible for we

capitalize these, in lieu, we
get depreciation expense.
Major repairs tend to
prolong the life of the
asset.

Expenses Allowed to Private

Educational Institutions

Expenses of a Farmer

Includes:

1. Cost of ordinary tools of short-life

or small cost like hand tools,
including shovels, rakes, etc.
2. Cost of feeding and raising
livestock (except farm produce
grown on the farm or through the
labor of the farmer).
3. Cost of gasoline or fuel, repair and
upkeep
of
transportation
equipment used wholly in farming
or only a portion of such expense if
the equipment is used partly for
the pleasure or convenience of the
farmer.
4. Cost of fertilizers, seeds and
seedlings

Purpose:

To achieve improvements in
educational activities and expansion
of school facilities.

Option, either: (Sec. 34 (A)(2))

1.

Deduct expenditures otherwise

considered as capital outla ys
of depreciable assets incurred for
the expansion of school facilities.
Deduct allowance for depreciation
thereof

2.

Miscellaneous

Organization costs are amortized

over the life of the corporation.

Cost of defending a civil suit

affecting
the
business
is
deductible, irrespective or the
success of the defense. Judgment
or other binding adjudication, on
account of damages for patent
infringement, personal injuries, or
other causes, are deductible when
the claim is adjudicated and paid.

D2
TAXATION LAW COMMITTEE: Chairperson: Rhodaline Regoso; Asst. Chairperson & EDP: Maricel Alisuag; Subject Heads:Junelet Mataro, Michelle Alvarez, Efren Dizon, Khan Guieb; Members: Alexis Cervantes. Leizl
Calimaran, Berna Quibal, Noreli De Claro, Jocelyn Gamboa, Albert Rodriguez, Karla Cabel, Joey Caraig, Rodolfo Quitolbo, Liam Pagdanganan, Paul Lawrence Lim, Alder Delloro, John Ivan Tablizo, Ria Ibaviosa, Pancho Vasquez, Aileen
Roxas, Leif Opia