[TOPIC 28] ITEMIZED DEDUCTIONS | Interests Expenses Incurred in the Conduct of Trade or Business

Описание: In our previous video, we have mentioned that a taxpayer who is self-employed or having a business or practicing his profession may be allowed to deduct certain items from his gross business income to arrive at net taxable income subject to income tax. The taxpayer may choose between a) Itemized Deductions or b) Optional Standard Deduction.

In this video, we discuss the tax rules when claiming itemized deductions, particularly when claiming interests as a deduction against the taxable gross income. Interests that may be chargeable against gross income include those interests paid and incurred in connection to the taxpayer's trade or business, or practice of profession. These interests must be NECESSARY, ORDINARY, and SUBSTANTIATED, otherwise, they cannot be allowed for deduction.

There are four tax treatment for interest expense:
a. Interests incurred in relation to a liability owing to the government are deductible in full amount.
b. Interests incurred, other than those owing to the government, in relation to an indebtedness used in the taxpayer's business is subject to 33% limit.
c. Interests which are incurred in acquiring or constructing a property may be treated as revenue expenditure or as a capital expenditure, at the option of the taxpayer.
d. Interests arising from loans between related taxpayers are non-deductible at all.

If you haven't watched yet the comparison between Itemized Deductions and Optional Deduction, please click this link to redirect you to our video discussion:    • [TOPIC 26] ALLOWABLE DEDUCTIONS | Itemized...  

To further understand the 10 ITEMIZED DEDUCTIONS, please watch the following videos in order:
1. General Business Expenses:    • [TOPIC 27] ITEMIZED DEDUCTIONS | General B...  
2. Interest:    • [TOPIC 28] ITEMIZED DEDUCTIONS | Interests...  
3. Taxes:    • [TOPIC 29] ITEMIZED DEDUCTIONS | Taxes Pai...  
4. Losses
4.1. Losses from Casualties:    • [TOPIC 30] ITEMIZED DEDUCTIONS | Losses ar...  
4.2. Losses from Operation (NOLCO):    • [TOPIC 31] ITEMIZED DEDUCTIONS | Net Opera...  
4.3. Losses from Wash Sales, Abandonment and Wagering Losses:    • [TOPIC 32] ITEMIZED DEDUCTIONS | Wash Sale...  
5. Bad Debts:    • [TOPIC 33] ITEMIZED DEDUCTIONS | Bad Debts...  
6. Depreciation:    • [TOPIC 34] ITEMIZED DEDUCTIONS | Depreciat...  
7. Depletion:    • [TOPIC 35] ITEMIZED DEDUCTIONS | Depletion...  
8. Charitable Contributions:    • [TOPIC 36] ITEMIZED DEDUCTIONS | Charitabl...  
9. Research and Development:    • [TOPIC 37] ITEMIZED DEDUCTIONS | Research ...  
10. Pension Trust:    • [TOPIC 38] ITEMIZED DEDUCTIONS | Contribut...  

Also, if you want to know about the components of gross income, and how to compute an income, please watch the following videos.

1. Sale of Real Properties Classified as Capital Assets:    • [TOPIC 23] DEALINGS IN PROPERTIES | Capita...  
2. Sale of Shares of Stocks:    • [TOPIC 24] DEALINGS IN PROPERTIES | Capita...  
3. Sale of Capital Assets not Subject to Capital Gains Tax:    • [TOPIC 25] DEALINGS IN PROPERTIES | Sale o...  
4. Ordinary Assets and Capital Assets:    • [TOPIC 22] DEALINGS IN PROPERTIES | Ordina...  
5. Computation of Gross Business and Professional Income:    • [TOPIC 13] GROSS BUSINESS AND PROFESSIONAL...  
6. How to Compute Compensation Income:    • [TOPIC 12] GROSS COMPENSATION INCOME | Inc...  
7. Final Income Tax on Certain Passive Income:    • [TOPIC 14] PASSIVE INCOMES | Final Withhol...  

I will upload videos every Monday, Wednesday and Friday.