"Business expenses" are expenditures related to the conduct of the business of the taxpayer

and deductible in the year incurred. While

"Capital expenses" are expenditures that improve or add to the value of the property or
equipment of the business. They are not immediately deductible, but may be deducted
overtime in the form of "Allowance for depreciation."

What is ordinary and necessary expense?

Section 34 (A)[1a] of the NIRC, as amended by RA No. 8424 provides that expenses are
considered “ordinary and necessary” if they are directly attributable to development,
management, operation and or conduct of the trade and business of the taxpayer or in the
exercise of the taxpayer’s profession
Ordinary, when it is normal (common or usual) in relation to the business of the taxpayer and the
surrounding circumstances. Need not be recurring e.g. lawyer’s fee to prosecute infringement
suit.
UNIQLO, H&M, GAS FROM MINDANAO

Necessary, where it is appropriate and helpful in the development of the taxpayer’s business. It is
intended to realize a profit or to minimize a loss

1. 8
2.

Depreciation vs Depletion
Depreciation - (SEC. 34 F) There shall be allowed as a depreciation deduction a reasonable
allowance for the exhaustion, wear and tear (including reasonable allowance for obsolescence) of
property used in trade or business

Depletion” refers to exhaustion of natural resources owing on production or severance. The

allowance for depletion is based on the theory that extraction of minerals gradually exhausts the
capital investment in the mineral deposit.

Limitations on Interest Expense Deduction

Limitations on Representation Expense Deduction

Limitations on Charitable Donations Deduction

When is improvement on property considered as capital expense?

Capital expenses" are expenditures that improve or add to the value of the property
or equipment of the business. They are not immediately deductible, but may be
deducted overtime in the form of "Allowance for depreciation
When is it considered as ordinary expense?

What is net sale?

What is net revenue?

Gross sales vs net sales

5 cards /4.5 net sales
Charitable and other contribution
1. accredited donee institution
a. gawa ka sariling institution tapos paaccredit ka
Pension Trust
10yr cumulative service
exempted and

GR: allowable deductions are used when there is need to determine taxable income

Gross income NO DEDUCTIONS. Because the tax is final income tax. Fit taxable base
is gross.

Expenses
Such as ordinary and necessary to the business of the taxpayer
Ex.salaries, wages, utilities, travel expenses, prof services

Bench went to Denmark. Ginamit and binili.

No. ginamit niya yung damit. Sinuot niya eh. Ordinary and expense o business?
Several supplier meetings? 3 days lang yung expenses. Kung kelan meeting

Losses must be actually proven and not reimbursed by insurance and during the
taxable year!

Tinakasan ka security agency? Loss? Yes

Nanakawan ka? Yes.

Bad debt-worthless

Depreciation-obsolescence-straightline method
Capital equipment-within 5yrs
Bldg.-25yrs
Land-NEVER

Depletion vs depreciation!!!!!

Charitable Requirement-ACCREDTIED DONEE

Derecho kay abs cbn

R&d requirement

Pension trust
Osd-once lang

Codal (paper or electronic)

Outline

Is there still exemption? No. section31