#AskTheTaxWhiz: Can I use personal expenses to reduce income tax?
This may come as a surprise but the answer depends on how you define “personal expense.” It is not the nature of expense that matters but its use or purpose. Clearly not allowed as deductible expenses are bribes, kickbacks and other similar payments.
In fact, except for employees, all ordinary and necessary expenses may be used to reduce income tax. Although the Bureau of Internal Revenue has issued regulations to set ceiling on particular expenses like representation and entertainment, it does not prevent us from claiming expenses, even if its nature may be personal, as long as it can be directly attributable to the conduct of trade, business or exercise of a profession.
Let’s consider clothing allowance as an example. Generally, payment for clothes is considered a personal expense but for models and actors, this may form part of their necessary expenses. At the end of the day, we need to know the applicable tax regulations but we have to decide which expenses are ordinary and necessary for the management and operation of our business or profession, as long as it supported by official receipts or other supporting documents.
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Mon Abrea is a former Bureau of Internal Revenue examiner and an advocate of genuine tax reform. He serves as chief strategy officer of the country’s first social enterprise, the Abrea Consulting Group, which offers strategic finance and tax advisory services to businesses and professionals. He is the founding president of the Center for Strategic Reforms of the Philippines, a non-profit organization that seeks to empower the fast-growing sector of Filipino micro, small and medium enterprises. Follow him on Twitter: @askthetaxwhiz or visit his group’s Facebook page. You may also email him at email@example.com.