UNIVERSITY OF THE EAST

INCOME TAXATION
SEATWORK/ASSIGNMENT

DEDUCTIONS FROM GROSS INCOME

Due Date: August 18 for MWF Class and August 17 for Tth Class

1. Deductions from Gross Income

a. Kinds of deductions 1) ?
(Enumerate and Discuss) 2) ?
3) ?
b. Special deductions (A) Insurance companies
(define what particular section (a) ?
in NIRC;define the company (b) ?
stated; write the portion or (B) Mutual insurance companies
amount that is deductible) (a) ?
(C) Mutual marine insurance companies
(a) ?
(b) ?
(D) Assessment insurance companies
(a) ?

2. Itemized Deductions Amplified

a. Expenses in General
1) Requisites for a) ?
deductibility of b) ?
expenses, in general c) ?
d) ?
2) Requisites for deductibility of a) ?
salaries, wages, and other b) ?
forms of compensation c) ?
3) Requisites for a) ?
deductibility of travel b) ?
expenses, here and abroad c) ?
4) Requisites for deductibility of a) ?
rentals b) ?
c) ?
5) Requisites for a) ?
deductibility of b) ?
entertainment, c) ?
amusement and d) ?
recreation expenses e) ?
f) ?
6) Ceiling on deductible a) Sales of goods or properties ?
entertainment, b) Sale of services, including exercise of profession and use or lease of property - ?
amusement and
recreation expenses
7) Exercise
ERA Corporation is engaged in the sale of goods and services with net sales/net revenue of P200,000 and P100,000
respectively. The actual entertainment, amusement and recreation expense for the taxable quarter totaled to P3,000.
How much is the amount of the deductible entertainment, amusement and recreation expense?

b. Interest Expense
1) Requisites for deductibility of a) ?
interest expense b) ?
c) ?
d) ?
e) ?
f) ?
g) ?
h) ?
i) ?
j) ?
2) Reduction of deductible The allowable deduction for interest shall be reduced by an amount equal to the following
interest expense percentages of the interest income subject to final tax.
Beginning January 1, 2000 ?%
Beginning November 1, 2005 to December 31 2008 ?%
Beginning January 1, 2009 ?%
3) Interest incurred or paid on ? (What is the ruling)
all unpaid business-related
taxes
 4) Prepaid interest of an ? (What is the Ruling)
individual under cash basis

c. Taxes
1) Requisites for deductibility a. ?
b. ?
2) Meaning of the term taxes ?
3) Interest on delinquent taxes ? (What is Ruling)
4) Non-deductible Taxes a. ? d. ?
b. ? e. ?
c. ? f. ?
5) Credit against tax for taxes in Allowable income tax credit Lower between:
foreign countries a. ? and
b. ?
6) Year in which tax credit is a. ?
taken b. ?
c. ?

d. Losses
1) Requisites for a) ?
deductibility of losses b) ?
c) ?
d) ?
e) ?
f) ?
g) ?
2) Net operating loss a) Meaning of net operating loss - ?
b) Meaning Net operating loss carry over - ?
c) Requisites for deductibility of NOLCO
(1) ?
(2) ?
(a) ?
(b) ?
d) Meaning and Ruling of Carry over period - ?
e) Net operating loss for mines other than oil and gas wells (2 Rulings)
(1) ?
(2) ?
3) Capital loss ? (what is Ruling)
4) Loss on wash sales a. ?
(Give meaning of Wash Sales b. ?
and give the two rulings provided
by NIRC)
5) Wagering losses ? (what is Ruling)
(Give meaning)
6) Abandonment losses a. ? (what is Ruling)
(Give Meaning) b. ? (what is Ruling)
7) Loss due to voluntary
removal of building ? (what is Ruling)
incident to renewal (Give
Meaning)
8) Real estate bought upon ? (what is Ruling)
which is located a building
(Give Meaning)
9) Loss of useful life (Give ? (what is Ruling)
Meaning)
10) Shrinkage in the value of ? (what is Ruling)
stock (Give Meaning)
11) Corporate readjustment a. ? (what is Ruling)
(merger and consolidation) b. ? (what is Ruling)
(Give Meaning)
12) Transfer of property a. ? (what is Ruling)
for stock that led to b. ? (what is Ruling)
control of corporation (Give
Meaning)
e. Bad Debts
1) Requisites for deductibility a) ?
b) ?
c) ?
d) ?
e) ?
2) Measure of bad debts a. If a corporation computes the income upon the basis of valuing its notes or accounts
receivable at their fair market value, ? (what is Ruling)
b. A purchaser of accounts receivable which cannot be collected and are consequently
 charged off the books as bad debts is entitled to deduct them, ? (what is Ruling)
c. For the amount received in distribution of the assets of a bankrupt company ? (what is
Ruling)
d. For the amount received by a creditor of a decedent in the
distribution of the assets of the decedents estate ? (what is Ruling)

f. Depreciation
1) Requisites for deductibility a. ?
b. ?
c. ?
d. ?
2) Methods of depreciation a. ?
b. ?
c. ?
d. ?
3) Depreciation of properties a. ?(what is Ruling)
used in petroleum
operations
b. ?(what is Ruling)
4) Depreciation of properties A. ?(what is Ruling)
used in mining operations B. ?(what is Ruling)
other than petroleum
operations
g. Depletion of Oil and Gas Wells and Mines
1) Method of depletion ?
2) Limitation of depletion ?
3) Intangible exploration and A. ?(what is Ruling)
development drilling costs B. ?(what is Ruling)
4) Total amount deductible A. ?(what is Ruling)
for exploration and B. ?(what is Ruling)
development expenditures (if
the taxpayer elects to
deduct exploration and
development expenditures)
h. Charitable and Other Contributions
1) Requisites for deductibility a. ?
b. ?
c. ?
2) Contributions deductible a. ?
with limit b. Those made to accredited domestic corporation or associations organized and operated
exclusively for:
1) ?
2) ?
3) ?
4) ?
5) ?
6) ?
c. ?
d. ?
3) Contributions deductible a. ?
in full

b. ?
c. Donations to accredited non-government organizations (nonprofit domestic corporations):
1) ?
2) ?
3) ?
4) ?
4) Limitation on the deductible a. Individual ?
amount b. Corporation ?
5) Valuation The amount of any charitable contribution of property other than money shall be based on ?
6) Contributions deductible by a. In determining its net income, the general professional partnership can deduct
a general professional contributions deductible in ?
partnership b. Contributions subject to limit shall be claimed and deducted by the partners in proportion
to ?
i. Research and Development
1) Requisites for deductibility a. ?
b. ?
c. ?
2) Amortization period of Ratably distributed over a period of not less than sixty (?) months as may be elected by the
deferred research and taxpayer (beginning with the month in which the taxpayer first realizes benefits from such
development expenditures).
3) Limitations on deduction of a. ?
research and development b. ?
j. Pension Trusts
1) Requisites for deductibility a. ?
b. ?
c. ?
2) Amount deductible a. Contribution for current pension ?
b. Contribution for past pension ?

k. Optional Standard Deductions (OSD) (RR No. 16-2008 as amended by RR No. 2-2010)
1) Persons covered The following may be allowed to claim OSD in lieu of the itemized deductions
a) Individuals b) Corporations
(1) ? (1) ?
(2) ? (2) ?
(3) ?
(4) ?
2) Determination of the a) The OSD allowed to individual taxpayers shall be a maximum of forty percent (?%) of gross
amount of OSD for sales (if on ? basis) or gross receipts (if on ? basis) during the taxable year.
individuals b) The cost of sales in case of individual seller of goods, or the cost of services in the case
of individual seller of services, are not allowed to be deducted for purposes of determining
the basis of the OSD
c) For other individual taxpayers allowed by law to report their income and deductions under a
different method of accounting (e.g. percentage of completion basis, etc.) other than cash
and accrual method of accounting, the gross sales or gross receipts shall be determined
in accordance with said acceptable method.
3) Determination of the a) In the case of corporate taxpayers, the OSD allowed shall be in an amount not exceeding
amount of OSD for forty percent (?%) of their gross income.
corporations DEFINE:
b) Gross income ?
c) Gross sales ?
d) Cost of goods sold ?
e) In the case of sellers of services, the term gross income means ?
f) Cost of services means all direct costs and expenses necessarily incurred to provide the
services required by the customers and clients such as:
(1) ?
(2) ?
g) Cost of services shall not include ? except ?
h) Gross receipts ?
i) For taxpayers engaged as sellers of services but employing the accrual basis of accounting
for their income, the term gross receipts shall mean ?
j) The items of gross income under Section 32 (A) of the Tax Code, as amended, which are
required to be declared in the income tax return of the taxpayer for the taxable year are
part of the gross income against which the OSD may be deducted in arriving at taxable
income. Passive income which have been subjected to a final tax at source shall not form
part of the gross income for purposes of computing the forty percent (40%) optional
standard deduction.

5) Summary of important points in OSD

Corporation General Prof. Partnership Individuals

1) Basis Gross income Gross income
2) Rate 40% 40%
3) Cost of sales/Cost of
services Deducted Deducted
4) Choice of OSD
(irrevocable) To be signified in the return To be signified in the return
5) Submission of
financial statements Required Required
6) Keeping of records Required pertaining to gross Required pertaining to gross
income income
7) Hybrid method
(partly itemized
deductions partly
OSD) Not allowed Not allowed
8) Computation of GS/GR xxx GS/GR xxx
taxable net income Less: Ret and allow xxx Less: Ret and allow xxx
using OSD Discounts xxx xxx Discounts xxx xxx
Net sales xxx Net sales xxx
Less: COS xxx Less: COS xxx
Gross income xxx Gross income xxx
Other income xxx Other income xxx
Total xxx Total xxx
Less: OSD xxx Less: OSD xxx
Taxable net income xxx Taxable net income xxx

END OF SEATWORK/ASSIGNMENT
THAT IN ALL THINGS, GOD MAY BE GLORIFIED