Running a small business comes with various costs, many of which can be deducted to reduce taxable income. The Bureau of Internal Revenue (BIR) in the Philippines allows business owners to claim deductions for ordinary and necessary expenses directly related to their operations. Here’s a comprehensive guide to the business expenses you can claim.
1. Employee Salaries and Benefits
Compensation paid to employees, including salaries, allowances, and bonuses, is deductible, provided the appropriate withholding taxes have been remitted to the BIR. Contributions to government-mandated benefits such as SSS, PhilHealth, and HDMF are also allowable deductions.
2. Rent Expenses
If your business operates from rented premises, rental costs are deductible. Ensure withholding taxes on rent are properly applied and remitted to the BIR.
3. Utilities
Electricity, water, and communication services (e.g., internet, telephone) used for business operations can be claimed as deductions.
4. Marketing and Advertising
Expenses related to marketing and promoting your business, including online advertisements, flyers, and promotions, are deductible.
5. Professional Fees
Payments made to professionals for services such as legal advice, accounting, or consultancy are allowable, provided withholding taxes are properly applied.
6. Repairs and Maintenance
Expenses for repairing and maintaining business assets, like equipment or office space, to keep them operational are deductible.
7. Office Supplies
Costs for office essentials like paper, pens, and other consumables used for business operations are fully deductible.
8. Depreciation
A portion of the cost of assets, such as machinery, equipment, and vehicles, can be deducted annually through depreciation, reflecting wear and tear.
9. Insurance
Premiums paid for insuring your business, including property insurance, liability insurance, or employee coverage, are allowable deductions.
10. Travel and Transportation
Travel expenses for business purposes, including transportation, lodging, and meals, are deductible if supported by receipts and documentation.
11. Taxes and Licenses
Local business taxes, regulatory fees, and permits required for your business are deductible. However, income tax and VAT are not allowable deductions.
12. Bad Debts
Unrecoverable debts may be deducted if they meet the criteria set by the BIR, such as being declared uncollectible within the taxable year.
13. Training and Seminars
Costs incurred to train employees or attend industry-related seminars to improve business operations are deductible.
14. Security Services
Payments for security services, such as hiring guards or installing surveillance systems, can be claimed as deductions.
Conclusion
By identifying and claiming the appropriate business expenses, small business owners can reduce taxable income and ensure compliance with tax laws. Proper record-keeping and adherence to BIR regulations are essential to avoid disallowed deductions.