INCOME TAXATION

ALLOWABLE DEDUCTIONS AND PERSONAL EXEMPTIONS

I.

Allowable Deductions
a. Definition
i. Deduction
ii. Expenses
1. Revenue Expenditure
2. Capital Expenditure
b. Concept
c. Nature
d. Distinction
i. Exclusion
ii. Tax Credit
iii. Cost of Goods Sold or Cost of Services
e. Taxpayers entitled to claim deductions Section 34 NIRC
f. Types of Deductions
i. Itemized Deductions
ii. Optional Standard Deduction
iii. Special Deduction

II.

Itemized Deduction Section 34

a. Expenses
i. General Requisites of Deductibility
ii. Ordinary and Necessary Trade, Business, or Professional
Expenses Section 34 (A)(1)
1. Meaning of Ordinary and Necessary
i. Esso Standard v. CIR, GR L-28508-9, 7 July 1989
2. Salaries and Wages
3. Travel Expenses
4. Rentals
5. Entertainment and Recreation Expenses
a. Nature
b. Ceilings
i. Sale of Goods
ii. Sale of Services
6. Substantiation Rule Section 34 (A)(1)(b)
7. Bribes, Kickbacks, and Other Similar Payments
Section 34 (A)(1)(c)
8. Option given to Private Educational Institutions
Section 34 (A)(2)
iii. Interest Section 34 (B)
1. In General
2. Limitation. Tax Arbitrage Scheme
3. Non Deductible Interest Section 34 (B) (2)
a. Cash Basis Reporting
b. Related Parties Section 36 (B)
c. Petroleum Operations
4. Optional Treatment of Interest Expenses
iv. Taxes Section 34 (C)
1. In General
2. Non-Deductible Taxes
3. Tax-Benefit Rule on Tax Refunds or Credits
4. Limitations on NRAETB and RFC
5. Tax Credit
a. Who are entitled and not entitled Section 34
(C) (3)
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b. Limitations Section 34 (C) (4)

v. Losses Section 34 (D)
1. In General
a. Requisites of Deductibility
2. Time to claim Losses
3. Proof of Loss
4. Net Operating Loss Carry-over Section 34 (D)(3)
a. Requisites
5. Capital Loss Section 34 (D)(4); Section 39
a. Definition of Terms Section 39
i. Ordinary Gain
ii. Ordinary Loss
iii. Capital Gain
iv. Capital Loss
v. Net Capital Gain
vi. Net Capital Loss
b. Holding Period Section 39 (B)
c. Limitation on Capital Losses Section 39 (C)
d. Net Capital Loss Carry-Over Section 39 (D)
i. Requisites
ii. Distinction: Net Operating Loss Carry-over
e. Retirement of Bonds, etc.
f. Gains and Losses from Short Sales, etc
g. Determination of Amount and Recognition of
Gain or Loss Section 40
i. Computation
ii. Basis for Determining Gain or Loss
iii. Rules on Exchange of Property
1. General Rule
2. Exception
a. Merger or Consolidation
b. Control
iv. Definitions Section 40 (6)
h. Securities Becoming Worthless Section 34 (D)
(4) (b), Section 34 (E) (2)
6. Losses from Wash Sales of Stock or Securities
Section 34 (D) (5), Section 38
7. Wagering Losses Section 34 (D)(6)
8. Abandonment Losses Section 34 (D)(7)
vi. Bad Debts Section 34 (E)
vii. Depreciation Section 34 (F)
1. Definition
2. In General
3. Methods
4. Depreciation of Properties Used In Petroleum
Operations
5. Depreciation of Properties Used in Mining Operations
6. Depreciation Deductible by NRANETB or RFC
viii. Depletion Section 34 (G)
ix. Charitable and Other Contributions Section 34 (H)
1. With Limitations
2. Deductible in Full
x. Research and Development Section 34 (I)
xi. Pension Trusts

III.

Optional Standard Deduction Section 34 (L)

a. Who may avail
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b. Individuals
c. Corporations

IV.

Special Deduction Premium Payments on Health and/or

Hospitalization Insurance Section 34 (M)
a. Requisites for Deductibility

V.

Personal Exemption for Individual Taxpayers

a. Who may avail Section 36 (D)
b. Personal Exemption
i. Amount
c. Additional Personal Exemption
i. Amount
ii. Definition of Dependent
d. Change of Status Section 36 (C)

VI.

Items not Deductible

a. In General
b. Losses from Sales or Exchanges of Property