Reasonable criteria for deductibility

A Comprehensive Guide to Reasonable Criteria for Deductibility Revenue Memorandum Circular No. 81-2025

As a mindfulness coach, understanding the tax implications of your business expenses is crucial. The Bureau of Internal Revenue (BIR) has issued Revenue Memorandum Circular No. 81-2025 to provide guidelines on the deductibility of expenses under the Tax Code. This guide will walk you through the reasonable criteria for deductibility and offer practical tips to ensure compliance.

What are Reasonable Criteria for Deductibility?

To qualify as deductible expenses, your business outlays must meet the following criteria

1. Ordinary and Necessary The expense must be related to your business or profession.
2. Paid or Incurred Within the Taxable Year Expenses must be paid or incurred within the taxable year (January 1 to December 31).
3. Paid or Incurred in Carrying On or Directly Attributable to The expense must be directly related to the development, management, operation, and/or conduct of your business.

A Step-by-Step Guide to Reasonable Criteria for Deductibility

### Step 1 Verify if the Expense is Ordinary and Necessary

When determining whether an expense is ordinary and necessary, consider the following

Example You purchase a mindfulness journaling app for $100 to help clients with stress management. This expense is ordinary and necessary because it's directly related to your business.
Tip Maintain accurate records of all expenses, including receipts, invoices, and bank statements.

### Step 2 Confirm if the Expense was Paid or Incurred Within the Taxable Year

To ensure compliance, verify that expenses were paid or incurred within the correct tax period

Example You paid $500 for a mindfulness coaching certification course on January 15, 2023. This expense is deductible because it was paid within the taxable year.
Tip Regularly review your business bank statements and records to ensure accurate record-keeping.

### Step 3 Determine if the Expense was Paid or Incurred in Carrying On or Directly Attributable to

When evaluating whether an expense is related to your business, consider the following

Example You hire a freelance writer for $2,000 to create a blog post promoting your mindfulness services. This expense is deductible because it's directly related to the development and management of your business.
Tip Keep detailed records of all contracts, invoices, and payment receipts to demonstrate the connection between expenses and business operations.

### Common Challenges and Solutions

Challenge 1 Separating Business from Personal Expenses

To avoid confusion, maintain a clear separation between personal and business expenses

Solution Create a separate business bank account and credit card.
Tip Utilize accounting software or spreadsheets to categorize expenses and ensure accurate record-keeping.

Challenge 2 Keeping Accurate Records

To ensure compliance, it's essential to keep accurate records

Solution Take photos of receipts, invoices, and bank statements before filing them away.
Tip Scan important documents and store them securely online for easy retrieval.

### Conclusion

As a mindfulness coach, understanding the reasonable criteria for deductibility under Revenue Memorandum Circular No. 81-2025 is crucial. By following this step-by-step guide and tips, you'll be well on your way to ensuring compliance with tax regulations and maximizing deductions for your business expenses.

Keywords Reasonable Criteria for Deductibility, Revenue Memorandum Circular No. 81-2025, Tax Code, Mindfulness Coaching, Business Expenses, Accounting, Record-Keeping

Edward Lance Arellano Lorilla

CEO / Co-Founder

Enjoy the little things in life. For one day, you may look back and realize they were the big things. Many of life's failures are people who did not realize how close they were to success when they gave up.