CHAPTER 10 - ALLOWABLE DEDUCTIONS

Allowable deductions are allowed only for NORMAL Tax

Because FINAL Tax are based on gross amounts.

*NRA-NEB Hindi pwede sa deductions kase similar sa final tax, taxable at gross amount.

Gross Receipts from prof

Rent Income, net of with
Compensation Income
Gross Income
Operating Expense (OSD
Taxable Income

Gross Sales ### INDIVI

Cost of Sales 360,000
Interest Income from Loans 20,000 Gross Sales
Interest Income on Bank deposits, USA 15,000 Cost of Sales
Interest Income on Bank Deposits, Philippines 30,000 Gross Business Income
Regular Allowabe Itemized Deductions 300,000 Interest Income, USA
Interest Income, loans
Gross Income
Allowable Deductions
Taxable Income

CORPOR

Gross Sales
Cost of Sales
Gross Business Income
Interest Income, USA
Interest Income, loans
Gross Income
Allowable Deductions
Taxable Income

NET OPERATING LOSS CARRY OVER *Nagkakaroon lang ng NOLCO kapag RID LANG.
Year 1 Year 2 Year 3 Year 4
Gross Sales 2,000 2,040 2,081 2,123
Cost of Sales 1,200 1,300 1,326 1,353
Interest Income from Loans 20 20 20 20
Interest Income on bank deposits 30 31 32 33
Rent Income 100 102 104 106
Regular Allowable Itemized Deducti 880 900 870 914
Allowable Deduction RAID RAID RAID RAID

Gross Sale 2,000 2,040 2,081 2,123

Cost of Sales (1,200) (1,300) (1,326) (1,353)
Gross Business Income 800 740 755 770
Interest Income on Loans 20 20 20 20
Rent Income 100 102 104 106
Gross Income 920 862 879 896
Allowable Deductions (880) (900) (870) (914)
- (9)
Taxable Income (NOL) 40 (38) - (18)

NOLCO 38 18
Taken Up (9) (8)
Balance 29 10
Not Taken Up - expired (29) (10)
Balance - -
OWABLE DEDUCTIONS

ble at gross amount.

Gross Receipts from profession 100,000

Rent Income, net of withholding tax of 5% 500,000
Compensation Income 300,000
Gross Income 900,000
Operating Expense (OSD) 600,000 40% (240,000)
Taxable Income 660,000

INDIVIDUAL:
RAID OSD
Gross Sales ### 2,000,000
Cost of Sales (360,000) -
Gross Business Income ### 2,000,000
Interest Income, USA 15,000 15,000
Interest Income, loans 20,000 20,000
Gross Income ### 2,035,000
Allowable Deductions (300,000) (800,000)
Taxable Income ### 1,235,000

CORPORATION:
RAID OSD
Gross Sales ### 2,000,000
Cost of Sales (360,000) (360,000)
Gross Business Income ### 1,640,000
Interest Income, USA 15,000 15,000
Interest Income, loans 20,000 20,000
Gross Income ### 1,675,000
Allowable Deductions (300,000) (670,000)
Taxable Income ### 1,005,000

kapag RID LANG.

Year 5 Year 6 Year 7
2,165 2,208 2,252
 1,380 1,408 1,436
20 20 20
34 35 36
108 110 112
932 969 940
OSD RAID RAID

2,165 2,208 2,252

- (1,408) (1,436)
2,165 800 816
20 20 20
108 110 112
2,293 930 948
(909) (969) (940)
Not Allowed (8)
1,384 (39) -

39
*EMPLOYEE COMPENSA
Salaries
13th month pay
Salaries of MWEs
De Minimis, within limit
De Minimis, excess of lim
Benefits for the employe
Fringe Benefit to rank an
Fringe Benefit to Manag
Insurance premium paid
Total Deductible Expens

*MATERIALS AND SUPP

COGS: Beginning Balanc

Office Supplies: Beginnin

Total Deductible Expens

*TRAVEL
Local, business seminar
Abroad, professional con
Local, company teambui
Total Deductible Expens

*RENT
Lease Bonus, expired
Rent Expense
Total Deductible Expens

*EAR

Sale of Goods
Sale of Services
Actual EAR
LOWER - deductible exp

*INTEREST
Interest expense on note
Interest Expense on defi
Interest Expense on loan
Interest Expense on loan
Interest Expense paid in

Interest Income from Ba

Deductible Interest expe

*BAD DEBTS
Write off
Deductible Bad Debt Exp

*DEPRECIATION - Fixed
Depreciation:

Deductible Depreciation

*CHARITABLE AND OTH

*TAXES AND LICENSES

Documentary stamp tax
Business Registrations
BIR registration
Deductible Taxes and Lic

*LOSSES
Impairment loss of Fixed
Impairment loss of Good
Loss on sale of equipme
Unrealized loss on chang
Expenses that has limits: Realized loss on change
1 Losses Loss on sale of equipme
2 Interest Gambling Losses
3 Bad Debts Deductible Losses

Gross sales
Gross receipts
Cost of Sales
Gross Income from busin
Interest Income on note
Gambling winnings
Gross Income
RAID:

Taxable Income

Gross Income
Allowable Deductions
Foreign Income tax Paid
Taxable Income
Corporate tax rate
Tax due
Less: Foreign Income tax
*Foreign Inome tax Paid of Canada is 200,000
 Gross Receipts
Cost of Services
Gross Profit
Business Expenses, excluding depre
Interest Expense
Depreciation
Taxable Income

CASE 1:
Machineries
Heavy Equipment
Office Equipment
Furniture and Fixtures

CASE 2:
Machineries
Heavy Equipment
Office Equipment
Furniture and Fixtures

Last Year's Overfunding

Contributions
Current Service Cost
Past Service Cost
Overfunding
*Fixed daw ang 10 years
Deductible Pension
*Always inaapply muna is current, saka iaapply ang past
TOTAL
*EMPLOYEE COMPENSATION
645,000
13th month pay 50,000
Salaries of MWEs 150,000
De Minimis, within limit 60,000
De Minimis, excess of limit 20,000
Benefits for the employers convenience 15,000
Fringe Benefit to rank and file and employee 10,000
Fringe Benefit to Managerial Employees 150,000
Insurance premium paid for employee 10,000
Total Deductible Expense 1,110,000

*MATERIALS AND SUPPLIES

COGS: Beginning Balance 67,500
Purchases 1,125,000
Less: Ending Balance (45,000) 1,147,500
Office Supplies: Beginning Balance 3,375
Purchases 56,250
Less: Ending Balance (2,250) 57,375
Total Deductible Expense 1,204,875

Local, business seminar 20,000

Abroad, professional conference 50,000
Local, company teambuilding 30,000
Total Deductible Expense 100,000

Lease Bonus, expired 50,000

Rent Expense 150,000
Total Deductible Expense 200,000

Goods Services
Sale of Goods 5,000,000 0.05% 2,500
Sale of Services 900,000 1% 9,000
Actual EAR 24,576 4,424
LOWER - deductible expense 24,576 4,424

*INTEREST Limit Full

Interest expense on notes payable 200,000
Interest Expense on deficiency tax 20,000 * kase sa government
Interest Expense on loan Nondeductible
Interest Expense on loan used in constructing residential house Nondeductible
Interest Expense paid in advance, issued on Nov. 1 for 5 months 10,000
210,000 20,000
Interest Income from Bank Deposit (19,800)
Deductible Interest expense 190,200 20,000

*BAD DEBTS
60,000
Deductible Bad Debt Expense 60,000

*DEPRECIATION - Fixed Assets (Depletion di pa kasama sa problem na to)

Depreciation:
Building 800,000
Equipment 240,000
Leasehold - 5 years 180,000
Leasehold - 4 years 120,000
Deductible Depreciation Expense 1,340,000

*CHARITABLE AND OTHER CONTRIBUTIONS

Full Limit
300,000
500,000
500,000
200,000
1,000,000 500,000

*TAXES AND LICENSES

Documentary stamp tax 1,000
Business Registrations 70,000
BIR registration 500
Deductible Taxes and Licenses expense 71,500

DeductibleNon-deductible
Impairment loss of Fixed asset 15,000
Impairment loss of Goodwill 30,000
Loss on sale of equipment 17,000
Unrealized loss on change in fair value of trading securities 2,500
Realized loss on change in fair value of trading securities 6,000
Loss on sale of equipment sold to brother 5,000
Gambling Losses *Sa winnings lang idededuct 2,000 Non deductible yung rema
Deductible Losses 23,000 52,500

Gross sales 5,000,000

Gross receipts 1,000,000
Cost of Sales (1,147,500)
Gross Income from business 4,852,500
Interest Income on notes receivable 300,000
Gambling winnings - Na offset na
Gross Income 5,152,500

Employee Compensation (1,110,000)

Office Supplies used (57,375)
Travel Expenses (100,000)
Rent Expense (200,000)
EAR (29,000)
Interest Expense (210,200)
Bad Debts (60,000)
Depreciation (1,340,000)
Taxes (71,500)
Losses (23,000)
Donation (1,195,143)
Taxable Income 756,282

CASE 1 CASE 2
Gross Income 2,000,000 2,000,000
Allowable Deductions (800,000) (800,000)
Foreign Income tax Paid (250,000) -
Taxable Income 950,000 1,200,000
Corporate tax rate 30% 30%
285,000 360,000
Less: Foreign Income tax Paid (LOWER)

CASE 2:
Total Foreign Taxable Income 660,000
World Taxable Income 1,200,000
Ratio 55%
Tax due 360,000
LIMIT A - cocompare sa total and sa actual 198,000 250,000

USA CANADA
 Foreign Taxable Income 300,000 360,000
World Taxable Income 1,200,000 1,200,000
Ratio 25% 30%
Tax Due 360,000 360,000
LIMIT B 90,000 108,000
Lower between these 2
Actual 50,000 200,000 158,000

CASE 1 CASE 2
3,000,000 3,000,000
(600,000) (600,000)
2,400,000 2,400,000
xpenses, excluding depreciation and interest (750,000) (750,000)
(12,000) -
(30,000) (32,400)
1,608,000 1,617,600

EUL Method Annual Depreciation

8 SYD 44,444
10 SYD 90,909
5 Straight 30,000
and Fixtures 5 Straight 12,000
177,354

EUL Method Annual Depreciation

8 SYD 44,444
10 SYD 90,909
5 SYD 50,000
and Fixtures 4 SYD 24,000
209,354

Year 1 Year 2 Year 3 Year 4 Year 5

Last Year's Overfunding 20,000 10,000 (10,000) (30,000)
Contributions 100,000 150,000 180,000 100,000 50,000 *Binago na Given
Current Service Cost (80,000) (120,000) (130,000) (80,000) (100,000)
Past Service Cost (40,000) (70,000) (40,000) -
Overfunding 20,000 10,000 (10,000) (30,000) (80,000)

Deductible Pension
Current service Cost 80,000 120,000 130,000 80,000 50,000
Past service cost yr.1 4,000 4,000 4,000 4,000
Past Service Cost yr.2 6,000 6,000 6,000
Past Service Cost yr.3 1,000 1,000
Past Service Cost yr.4 1,000 1,000
80,000 124,000 140,000 92,000 62,000
 *Additional Example for interest
Loan 100,000
government Prepaid Interest 10,000
Cash Proceeds 90,000
Issue Date Apr. 1, 2019
Due Date Mar. 31, 2022

CASE 1: LUMPSUM 2019 2020 2021 2022

Individual taxpayer, cash basis 10,000
Accrual Basis 2,500 3,333.33 3,333.33 833.33

CASE 2: FOUR EQUAL ANNUAL INSTALLMENT

2019 2020 2021 2022
Individual taxpayer, cash basis #REF! #REF! #REF!
Accrual Basis ??? #REF! #REF! 2,250 1,250

This Year Next Year

Apr - Dec. Jan. - Mar.
1st 100,000 10,000 #REF! #REF! #REF!
2nd 75,000 10,000 #REF! #REF! #REF!
3rd 50,000 10,000 #REF! #REF! #REF!
Non deductible yung remaining loss
 2023
#REF!
250