ALLOWABLE DEDUCTIONS (Sec.

34)

Taxable but allowed by law to be deducted in the Gross Income.

It is not included in the ITR.
Itemized deductions:
 Are expenses and losses related to trade or business or the practice of profession
 do not apply to taxpayers earning compensation income from an employer-employee
relationship

The following are the deductions from gross income:

Item General Rule Exemption
Premium payments on health FOR INDIVIDUALS with gross
and/or hospitalization insurance compensation income (from
(PHHI) employer and employee
relationship only)

Provided family gross income is

not more than 250,000

Personal exemptions

For individuals with gross

income from business or
practice of profession

OSD
Itemized deductions
PHHI
Personal exemptions
For corporations

OSD
Itemized deductions

The following are the itemized deductions: (EITLBdDDCaocRadPt)

Item GR XPN
Expenses Ordinary and necessary trade, business, or
professional expenses paid or incurred during the
taxable year

Which are directly attributed to

1. the development
2. management
3. operation
4. conduct of the trade, business, or
exercise of a profession, including
 salaries, wages and other forms of
compensation for personal services
actually rendered, including the grossed-
up monetary value of fringe benefit
furnished or granted by the employer to
the employee
provided the FINAL TAX imposed has been paid.

5. Reasonable allowance for travel

expenses, here and abroad in the pursuit
of trade, business, or profession
6. Reasonable allowance for rentals and/or
other payments which are required as a
condition for the continued use or
possession of property
7. Reasonable allowance for entertainment,
amusement and recreation expenses –

Requirements for deductibility in the Gross

Income:

a. Paid or incurred during the taxable

year
b. directly related to or in furtherance of
the conduct of his or its trade,
business or profession of the taxpayer
c. Provided that it is not contrary to law,
morals, public policy or public order
d. Not paid as a bribe or kickback
e. Substantiated by official receipts or If ads is use to stimulate future
other adequate records sale of services (not deductible)
f. Taxes must have been withheld, and considered as capital
paid to the BIR if subject to the final expenditure
tax
Litigation expenses – capital in
Ordinary – when it is normal in relation to the nature – not deductible
business of the taxpayer. It need not be recurring.

Necessary – when it is appropriate and helpful in

the development of the taxpayer’s business. See
if it is intended to minimize losses or to maximize
profits.

a. Advertising expenses (to stimulate the

current sale of services) deductible
b. Bonuses (provided does not exceed
reasonable compensation for the services
rendered)
 c. Professional partnership (10% of the
gross income derived from actual
performance of legal profession.
d. Other expenses ( discounts granted to
senior citizen, pwds, breastfeeding
Interest Interests paid on debts are allowed deductions:
a. These must be an indebtedness
b. Incurred by the taxpayer
c. Incurred in relation to the profession,
trade or business
d. Incurred during the taxable year
e. Stipulated in writing
f. Legally due
g. Must not be between related taxpayers
h. Not incurred to finance petroleum
operations
i. Reduced in 33%
Taxes In connection with taxpayer’s business
Paid or incurred during the taxable year
Tax must be imposed by law on, and payable by
taxpayer
NOLCO NOLCO vs NCLCO

Bad debts
Depreciation
Depletion
Charitable and
other
contributions
Research and
development
Pension trusts