Allowable deductible medical expenses12/3/2023 ![]() ![]() Under OSD, they may deduct 40% of gross sales/receipts for individuals or 40% of gross income for corporations. To do away with the substantiation, a taxpayer engaged in trade or business or in practice of profession may take for optional standard deduction (OSD). ![]() Official reciepts and sales invoices duly registered by the Bureau of Internal Revenue (BIR) are the common suporting documents but some itemized deductible expenses require specific substantiation requirements like board resolution for bad debts expense and proof of loss in claims of casualty losses deduction. Another is the deduction for basic personal exemption and additional personal expenses for individual taxpayers to cover the personal living expenses.Ĭonsidering that the deduction relates to actual business expenses, it is required that they be supported by documents. Example, charitable contribution does not necessarily be a business related expense to be deductible. However, some expenses are allowed as deductible expense despite the absence of a business relation. In same manner, compensation income of individual taxpayers is not deducted allowable deductions under this context. ![]() Taxpayers not engaged in trade or business or practice of profession are not entitled to deduct allowable deductions – e.g., pure compensation income earners. Expenses which are personal to the business owners or entrepreneurs and does not contribute to earning the income are not allowed deductions. It would be unfair if the taxpayer would be taxed at gross amount without allowable deductions, if it only earned so much, otherwise, most of its net income would only go through the coffers of the taxing authority.Īllowable deductions from gross income relates to business expenses – those expenses which are ordinary and necessary for the conduct of trade or business or profession. As such, the allowable deductions from gross income becomes a tool to equitably measure the taxpayers net income from its business undertakings. In business setting, it is admitted that business expenses are necessary to earn a revenue. In income taxation in the Philippines, a taxpayer is being subjected to income tax because it earned something – be it from business or non-business activities. We share hereunder some features for your deeper understanding.Ī tool to reasonably measure taxable income In either case, they share the same concept, unless stated hereunder. They are technically termed as “allowable deductions from gross income” and they could be under itemized deductions or under optional standard deductions (OSD). In computing for the income tax in the Philippines, certain deductible expenses are subtracted from gross income. ![]()
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