Regular Income Taxation

INCLUSION IN GROSS INCOME

Regular Allowable
Itemized Deductions
THE REGULAR INCOME TAX
MODEL
 INTEREST EXPENSE
➢ Requisites on the deductibility of the
interest (RR13-2000)

ITEMIZED DEDUCTIONS
1. Interest Expense
2. Taxes
3. Losses
4. Bad Debts
5. Depreciation
6. Depletion
7. Charitable and other contributions
8. Research and development cost
9. Other ordinary and necessary trade,
business, or professional expenses
INTEREST EXPENSE
 Deductible amount of interest
expense
 Gross Int Exp less % Int. Income subj
to FT

Effectivity Percentage
Jan. 1, 2009 33%
Jan. 1, 2021 20%
INTEREST EXPENSE
INTEREST EXPENSE
 TAXES
➢ Taxes paid/incurred w/in the taxable
year in connection w/ the taxpayer’s
trade, business or exercise of
profession.
➢ Exception:
ITEMIZED DEDUTIONS
1. Interest Expense
2. Taxes
3. Losses
4. Bad Debts
5. Depreciation
6. Depletion
7. Charitable and other contributions
8. Research and development cost
9. Other ordinary and necessary trade,
business, or professional expenses
TAXES FOREIGN INCOME TAX
➢ Examples of deductible taxes ➢ Income taxes paid in foreign
1. Percentage tax country can either be claimed as:
2. Excise Tax 1. Deduction
3. Documentary Stamp Tax 2. Tax credit
4. Occupational Tax
5. License tax
6. Fringe benefit tax
7. Local Taxes except special assessment
8. Community Tax
9. Municipal tax
10. Foreign income Tax if not included as
tax credit
FOREIGN INCOME TAX 2. Tax Credit Approach
1. Deduction Approach
 LOSSES
➢ Actually sustained during the taxable
year
➢ Not compensated by insurance or
other indemnity

ITEMIZED DEDUCTIONS ➢ Requisites for the deductions:

1. Interest Expense
2. Taxes
3. Losses
4. Bad Debts
5. Depreciation
6. Depletion
7. Charitable and other contributions
8. Research and development cost
9. Other ordinary and necessary trade,
business, or professional expenses
LOSSES LOSSES
➢ Types:
1. Ordinary loss
➢ Deductible in full

2. Capital loss
➢ Up to the extent of capital gains
LOSSES
➢ Loss of value of assets
➢ Not deductible
➢ Exception: impairment loss actually
sustained
 BAD DEBTS
➢ Debt due to the taxpayer
➢ Ascertained to be worthless & charged
off w/in the taxable year.

ITEMIZED DEDUCTIONS
1. Interest Expense
2. Taxes
3. Losses
4. Bad Debts
5. Depreciation
6. Depletion
7. Charitable and other contributions
8. Research and development cost
9. Other ordinary and necessary trade,
business, or professional expenses
BAD DEBTS
➢ Securities becoming worthless
➢ Treated as bad debts exp not capital
loss
➢ Covers bonds, debentures, notes,
certificates, or other form of
indebtedness

➢ Subsequent recovery of bad debts

➢ Included in the gross income

➢ Subsequent change in Accounting

methods
➢ Should not be deducted (Cash to
Accrual)
 DEPRECIATION
➢ Reasonable allowance for the
exhaustion and wear and tear
➢ Special rules on depreciation

ITEMIZED DEDUCTIONS
1. Interest Expense
2. Taxes
3. Losses 1. Life Tenancy to a property
4. Bad Debts
5. Depreciation  Life tenant as the absolute owner
6. Depletion
 Allowed as deduction to the life tenant
7. Charitable and other contributions
8. Research and development cost
9. Other ordinary and necessary trade,
business, or professional expenses
DEPRECIATION 3. Depreciation on revalued property
➢ Special rules on depreciation  Based on acquisition cost not on its
reappraised value.
2. Property held in Trust
 Apportioned between the income
beneficiaries and the trustees 4. Rules on deductibility of depreciation
on passenger vehicles

 AMORTIZATION OF INTANGIBLE ASSET

 Same concept applies to patents,
royalties, franchises
 Depreciation of intangible asset
 DEPLETION
➢ Depletion Expense
➢ Provision for the periodic return of
capital investment in wasting assets.

ITEMIZED DEDUCTIONS
1. Interest Expense
2. Taxes
3. Losses
4. Bad Debts
5. Depreciation
6. Depletion
7. Charitable and other contributions
8. Research and development cost
9. Other ordinary and necessary trade,
business, or professional expenses
DEPLETION DEPLETION
➢ Treatment of tangible development ➢ Treatment of Intangible exploration
cost and development cost
➢ Tangible exploration and development
drilling cost are capitalized and
deducted through allowance for
depreciation subject to the ff rules:
DEPLETION
➢ Treatment of exploration and
development cost
➢ Cost depletion formula
 CHARITABLE AND OTHER
CONTRIBUTIONS
 Contributions or gifts made to the
government or NGOs

ITEMIZED DEDUCTIONS
1. Interest Expense
2. Taxes
3. Losses
4. Bad Debts
5. Depreciation
6. Depletion
7. Charitable and other contributions
8. Research and development cost
9. Other ordinary and necessary trade,
business, or professional expenses
CHARITABLE AND OTHER CONTRIBUTIONS
➢ Classification of contributions B. Contributions subject to limit
A. Fully Deductible Contributions
CHARITABLE AND OTHER
CONTRIBUTIONS
B. Contributions subject to limit
CHARITABLE AND OTHER
CONTRIBUTIONS
B. Contributions subject to limit
CHARITABLE AND OTHER
CONTRIBUTIONS
Contributions to pension trusts
 Types of employee pension plans
1. Defined contribution
 Employer is obligated to contribute to
the pension fund
 Benefits received shall be dependent
upon investment performance
2. Defined benefit plan
 Employer guarantee the amount of
benefits
 Type:
 Funding of current service cost
 Funding of prior service cost
 RESEARCH AND DEVELOPMENT COST
 Research & development activities

ITEMIZED DEDUCTIONS
1. Interest Expense
2. Taxes
3. Losses
4. Bad Debts
5. Depreciation
6. Depletion
7. Charitable and other contributions
8. Research and development cost
9. Other ordinary and necessary trade,
business, or professional expenses
 EXPENSES IN GENERAL
 substantiated with official receipts or
other pertinent records.

ITEMIZED DEDUCTIONS
1. Interest Expense
2. Taxes
3. Losses
4. Bad Debts
5. Depreciation
6. Depletion
7. Charitable and other contributions
8. Research and development cost
9. Other ordinary and necessary trade,
business, or professional expenses
THANK YOU!