Itemized Deductions

This is related to this article. When making itemized deductions, remember these important guidelines.

Requisites:

1.) Must be ordinary and necessary

2.) Must be paid or incurred during the taxable year

3.) Connected to the business, trade or profession

4.) Must be reasonable

5.) If the money received by the taxpayer is subject to withholding tax, the tax must be withheld and paid to the BIR

"Incurred" means that if the accrual method of accounting is used, income that is not yet received but already theoretically earned.

All taxpayers, including estates, trusts and partnerships, can claim itemized deduction. Non-resident aliens (last part of this article) regardless of whether or not doing business in the Philippines, as well as non-resident foreign corporations, can't claim itemized deduction.

The following items can be claimed under itemized deduction:

1.) Expenses in general

2.) Interest

3.) Taxes

4.) Losses

5.) Bad debts

6.) Depreciation

7.) Depletion of oil and gas wells and mines

8.) Charitable and other contributions

9.) Contributions to research and development

10.) Pension trusts

11.) An individual taxpayer's health and/or hospitalization insurance premium payments

"Expenses in general" are the usual day-to-day expenses of the trade, businesses or profession. These include:

1.) Travel expenses

2.) Rental expenses

3.) Salaries, wages and other forms of compensation , including grossed-up monetary value of fringe benefits given by the employer to the employee (provided that in the employee's case, the final taxes on the fringe benefits were already paid)

4.) Expenses for recreation, entertainment and amusement as long as they're not contrary to law, morals, good customs, public order and public policy