Income Taxation 4

Front 1

Some taxpayers are taxed on the basis of their blank.

Back 1

Net Income

Front 2

The difference between the gross income and the allowable deductions.

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Net Income

Front 3

The blank are allowed only if the taxpayer derived his/her income from business or the exercise of profession (self-employed individual).

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Deductions

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They are not allowed if the income of the taxpayer was derived primarily from compensation and other passive income.

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Deductions

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A maximum of 40% of the gross sales or gross receipts less returns and allowances, if any, shall be allowed as deduction in the lieu of the itemized deduction from business of a taxpayer.

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Optional Standard Deduction

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The amount computed shall be deducted without any need for supporting documents or meeting the requirements imposed on itemized deductions.

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Optional Standard Deduction

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This type of deduction shall not be allowed for non-resident aliens engaged in trade or business.

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Optional Standard Deduction

Front 8

An individual who opts to avail of Optional Standard Deduction need not submit the blank.

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Account Information Return (AIF)

Financial Statements

Front 9

There shall be allowed as deduction from gross income all the ordinary and necessary expenses paid or incurred during the taxable year.

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Itemized Deductions

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Includes interest, taxes, losses, bad debts, depreciation, depletion, charitable and other contributions, research and development, and pension trust.

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Itemized Deductions

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Requisites for Itemized Expenses to be Deductible

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*Must be connected with taxpayer's trade or business

*Duly supported with documents

*Must have been incurred during the taxable year

*Must be incurred by the taxpayer

*Must not be illegal

Front 12

Blank paid or incurred during the taxable year in carrying on or which directly attributable to the development, management, operation and conduct of the trade or exercise of profession.

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Ordinary and Necessary Business or Professional Expenses

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The amount of interest paid or incurred within the taxable year or indebtedness in connection with the taxpayer's business or profession.

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Interest Expenses

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Interest deductible shall be reduced by percentages of interest income

Beginning January 1, 1998

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41%

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Interest deductible shall be reduced by percentages of interest income Beginning January 1, 1999

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39%

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Interest deductible shall be reduced by percentages of interest income Beginning January 1, 2000

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38%

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Interest deductible shall be reduced by percentages of interest income Beginning November, 2005

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42%

Front 18

Taxes allowed as deduction when refunded or credited shall be included as part of blank in the year of receipt.

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Gross Income

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Blank actually sustained during the taxable year and not compensated for by insurance or other form of indemnity shall be deductible.

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Losses

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Losses are deductible under the following conditions :

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*Incurred in pursuit, or from robbery, theft or embezzlement

*Property connected with taxpayer's trade or profession

*losses has not been claimed as deduction for estate tax purposes

Front 21

Any loss incurred in trade or profession or casualty losses or disposal of property used in trade or business of the taxpayer.

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Ordinary Loss

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This loss is deductible from the gross income.

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Ordinary Loss

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Ordinary Loss is deductible from the blank.

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Gross Income

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Any loss incurred in the disposal of or other loss sustained by the taxpayer on capital assets.

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Capital Loss

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Blank (held for not more than 1 year) is deductible 100%

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Short-term capital loss

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Blank (held for more than 1 year) is deductible at 50% only.

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Long-term Capital Loss

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Blank is deductible from and to the extent of the blank only.

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Capital Gain

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The operating loss of any business or enterprise for any taxable year immediately preceeding the current taxable year shall be carried over as a deduction.

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Net Operating Loss Carry-Over

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Net Operating Loss Carry-Over shall be carried over as a deduction from the gross income for the next blank immediately after the year of loss.

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3 consecutive taxable years

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Net Operating Loss Carry-Over must be provided that there has not been a substantial change in the ownership of the business in that not less than blank of the nominal value of outstanding issued shares is held by or on behalf of the same person.

Back 30

75%

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Blank arising from securities becoming worthless during the taxable year shall be considered loss on the last day of the taxable year.

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Capital Loss

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Loss sustained from any sale or other disposition of shares of stock wherein the taxpayer has acquired within 30 days before or 30 days after the date of sale or other disposition by purchase or exchange.

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Loss on Wash Sale of Capital Stocks

Front 33

Loss on Wash Sale of Capital Stocks sustained from any sale or other disposition of shares of stock wherein the taxpayer has acquired within blank the date of sale or other disposition by purchase or exchange.

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30 days before or 30 days after

Front 34

Losses acquired from gambling shall be deductible only from wagering / gambling gain.

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Wagering or Gambling Loss

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Wagering or Gambling Losses acquired from gambling shall be deductible only from blank.

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Wagering or Gambling Gain

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Debts due to the taxpayer actually ascertained to be worthless and charged off within the taxable year shall be deductible.

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Bad Debts

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Blank recovery shall be treated as income on the year recovered.

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Bad Debts

Front 38

Bad Debts recovery shall be treated as blank on the year recovered.

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Income

Front 39

There shall be allowed as deduction a reasonable allowance for exhaustion, wear and tear, and obsolescence (depreciation of property used in business or profession of the taxpayer).

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Depreciation and Depletion

Front 40

The reasonable allowance for depreciation shall be computed using any of the following methods :

Back 40

*Straight-Line Method

*Declining Balance Method

*Sum of the Years Digit Method

*any method prescribed by the Secretary of Finance

Front 41

Contributions or gifts actually paid or made within the taxable year to or for the use of the Philippine Government or any of its agencies.

Back 41

Charitable and Other Contributions

Front 42

Contributions to Philippine Government, foreign institutions or international organizations, and accredited non-government organizations or non-profit domestic corporations shall be deducted in full.

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Special Contributions / Donations

Front 43

Contributions to other qualified institutions except those enumerated in Special Contributions shall be deductible in an amount not exceeding 5% or 10% of the net income before deducting all contributions.

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Ordinary Contributions / Donations

Front 44

Ordinary Contributions to other qualified institutions except those enumerated in Special Contributions shall be deductible in an amount not exceeding blank of the net income before deducting all contributions.

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5% or 10%

Front 45

Ordinary Contributions to other qualified institutions except those enumerated in Special Contributions shall be deductible in an amount not exceeding 5% or 10% of the blank before deducting all contributions.

Back 45

Net Income

Front 46

A taxpayer may treat research or development expenditures which are paid or incurred during the taxable year in connection with his trade or profession as ordinary abd necessary expenses.

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Research and Development

Front 47

Any employer maintaining pension trust to provide for the payment of reasonable pensions to his employees.

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Pension Trust Contribution

Front 48

Contribution to the fund to cover the liability for previous years, if it has not been allowed as deduction, is apportioned in equal parts over a period of blank beginning the year the payment was made.

Back 48

10 consecutive years

Front 49

Sources of Expenditure Deductible from the Gross Income

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*Citizens of the Philippines

*Aliens

Front 50

The expenses qualified as itemized deductions actually incurred or paid and connected with the taxpayer trade, business or profession.

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Citizens of the Philippines

Front 51

Allowable expenses connected with trade or business or profession actually incurred in the Philippines and abroad.

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Resident Citizens

Front 52

On business income in the Philippines, allowable business expenses incurred which are properly allocated in the pursuit of his business in the Philippines and a ratable portion of allowable expenses not definitely allocated to specific gross income or operations.

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Non-resident Citizens

Front 53

All expenses incurred which are properly allocated to the conduct of his business in the Philippines and ratable portion of allowable expenses which cannot definitely allocated to specific gross income.

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Resident Aliens

Front 54

The amount deductible shall be determined in the same manner as resident aliens.

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Non-resident alien engaged in trade or business in the Philippines

Front 55

No deduction shall be allowed because they are taxable on their gross income within the Philippines only subject to final tax.

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Non-resident alien not engaged in trade or business in the Philippines

Front 56

If the gross income is bigger than the allowable deductions, the difference is blank.

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Net Income

Front 57

If the allowable deductions is bigger than the gross income, the result of operation is a blank.

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Net Loss