Unit 12 Session 10

8/3/2019 Unit 12 Session 10

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UNIT 12

TAXATIONSession 10


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RequirementRequirementExplain how income tax

deductions are to bedealt with


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Topics

Review of Last session

Test of baseline knowledge Income Tax Deductions

Treatment of losses

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Review ofLast session


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Test of baseline

knowledge


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Income Tax Deductions

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Deductions from Tax

Business expenses

Cost of goods sold/ Sales

Trading or ordinary and necessary businessexpenses

Accounting methods


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Some Business Expenses

Employee wages and most employee benefitsEmployee wages and most employee benefits

Rent or lease paymentsRent or lease payments

Interest on business loansInterest on business loans

Real estate taxes on business propertyReal estate taxes on business property

Local and foreign income taxes assessed to your businessLocal and foreign income taxes assessed to your business

Business insuranceBusiness insurance

Advertising and promotion costsAdvertising and promotion costs

Employee education and trainingEmployee education and training

Education to maintain or improve your own required businessEducation to maintain or improve your own required businessskillsskills

Legal and professional feesLegal and professional fees

UtilitiesUtilities

Telephone costsTelephone costs


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Cost of Goods Sold/ Sales

Parts, raw materials and supplies used,

Labor, including associated costs such as payroll taxes

and benefits, and

Overhead of the business allocable to production


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Trading or ordinary and necessary

business expenses

Deals with what expenses are appropriate to the nature

of the business, whether the expenses are of the sort

expected to help produce income and promote the

business, and whether the expenses are not lavish and

extravagant.


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Accounting Method

Cash Method

- include income when it

is received, and claim

deductions when expenses

are paid

Accrual Method

- Include income when they

are earnedand claim

deductions when expenses

are incurred.


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Treatment of losses


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Current Losses from Transactions

Recorded in the accounting books

Deducted from income as:

losses from trade or

losses from extraordinary transaction

Reported in the Audited Financial Statements

Finally, reported to the BIR tax form


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Net Operating Losses Carry Over (NOLCO)

BIR Revenue Regulation 14-2001

August 14, 2001


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Treatment of NOLCO

Loss of the past three years can be deducted to the

current Income of the year it has income.

Loss of the past ten years can be deducted to the

income to the next five years that the company hasincome

The treatment of NOLCO shall be on a first-in, first-out

basis.

NOLCO shall have a separate section and not included

in ordinary losses.


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Exclusions from NOLCO benefit

BOI exempted companies

PEZA exempted companies


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Capital Losses

term 'net capital loss' means the excess of the losses

from sales or exchanges of capital assets over the gains

from such sales or exchanges.


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Percentage Taken into Account

1. One hundred percent (100%) if the capital asset has

been held for not more than twelve (12) months; and

2. Fifty percent (50%) if the capital asset has been held formore than twelve (12) months;


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Basis of ComputationBasis of Computation

Stocks : Selling Price less Purchase Price

Realty: Excess of the basis or adjusted basis for

determining loss over the amount realized.


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Basis of Real Property Disposal

1) The cost thereof in the case of property acquired

2) The fair market price or value as of the date of acquisition

3) If the property was acquired by gift, the basis shall be the

same as if it would be in the hands of the donor

4) If the property was acquired for less than an adequateconsideration in money or money's worth, the basis of such

property is the amount paid by the transferee for the property


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Topics for Research

Incidence of Capital Gains

Chargeable assets and disposals

Basis of Assessment

Treatment of Deductions

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Required

Identify chargeable assets and

disposals for an individual orcompany

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Documents

Unit 12 Session 10