Additional Exemptions: AE

Scenario: Riza and Ralph, each of them has 4 children they are in a relationship.
Ang sinabi ng batas per pair lang. So the ratio being 1 couple: 4 additional exemptions
Otherwise we will be favoring an unmarried relationship rather than a married relationship.
It is the choice of the TP who among the children will be subject to AE
Compensation Earner
Pag married it is the H ang right mag claim ng additional exemptions unless:
Waiver
No work
Scenario: Legally separated
The person who claim the AE should be the person:
The children is living w/ and dependent on him for support.
Scenario: Annulled
Apply the rules when it comes to single individuals.
Scenario: Spouse died
Apply rules when it comes to single individuals
Question: Can one claim a Senior Citizen (SC) as a dependent to qualify under the rules on AEs?
Answer: A SC is not qualified to be claimed the proper subject of AE under the Tax Code. The provisions
under the 1st is the Senior Citizen Act and then the Expanded Senior Citizens Act was rendered moot and
academic because of the amendment of the Tax Code. Since all individuals are qualified for a 50,000
personal exemption. PE became uniform without any distinction.
Dependent Children: Not more than 21 years of age, dependent for chief support upon the parent.
A person w/ disability PWD may be physically or mentally disabled (dapat anak mo talaga, di yung
nadampot lang!) may be claimed as a dependent for purposes of additional exemption.
Foster Child Act
A foster child is qualified as a dependent child for purposes of claiming additional exemption but also be
included in the 4 dependent of limit. (Duly registered w/ the DSWD: foster child) Per dependent will
entitle a TP to an additional exemption of 25,000 php each.
Req: Must have stayed with the TP for 6 months in one 12 month period.
Premium on Health and Hospitalization Insurance (not life)
This deduction is allowed on both TPs, NETB or those ETB. In the amount of 2,400 php per year per
family provided the gross annual income of the family does not exceed 250,000.
Shifting of OSD to Itemized Deduction? During the 1 yr period such shfting is prohibited
OSD: no need of receipts
ID: Must be properly receipted or substantiated
Rule: in all kinds of deduction you can claim the deduction during the year that the expense was incurred.
Failure to claim in the year you incurred the expense you are forever barred to claim such deduction.
Pag 2013 ang expense mo at nakalimuta mo magclaim sa taon na 2013 hindi mo na siya pwede iclaim sa
2014. Barred ka na! Kaya dapat lahat ng expenses na sinasabi ng batas dapat iclaim mo talaga. Pag di mo
na claim yan ang effect ay your net income will increase so as your tax due.
Sec. 34 Itemized Deductions
Not applicable to purely compensation income earners. So as OSD, such doesnt apply as well.

Req:
1. Actually paid or incurred;
2. Necessary in trade or business;
a. properly documented
b. the expense must have a relation to the kind of the business that you are engaged in. (relative,
this is a case to case basis depending on the business of the TP claiming the ID)
3. Reasonable in amount.
Reasonableness is dependent on the organizational set-up of your office. Remember everyone
who is engaged in a business is operating to earn and not to operate at a loss. E.g. nobody in his
right mind will give a 20th month bonus BIR will disallow this to be claimed as deduction. It
defies human nature and the natural course of life.
Necessary business expenses:
X(may be a person or corporation ) ER
- 20k Basic pay given by X to Y: deductible
- DMB was given within 82K limit
- A car amounting to 500K was given to Y
the EE? X cannot claim this as a
deductible business expense. This is a
capital expenditure and subject to
depreciation.
- If X bought a car for himself: Capital
expenditure is used to purchase an
ordinary asset. This cannot be claimed as
a deduction for business expense. In lieu
thereof you can depreciate the deduction.
The item of deduction now becomes
DEPRECIATION.
- X pays rental to A. Subject to tax, from
within, NIT. X can claim this as business
expense since the leasing of the space is
necessary to operate the salon business of
X,
- Ayaw na magrenta ni X so rent to own
agreement. He cannot claim this as a
deductible business expense because X
acquired interest other than a mere
possessor of the property.
- X, also paid utility expenses. X can claim
the UE as deductible business expenses.
- Sabi X bibilin nya yung bahay from A
under a deed of sale. Subject to tax on As
end this income from within subject to
NIT since this is an OA because A is
engaged in the business of leasing.
- X RTO 15k will be paid to the
lessor/owner A. Not deductible, this is
capital expenditure subject to
depreciation.
- X may never claim the 1M as deduction

Y Employee/EE
- Basic pay of 20k. Salary of Y. (inc. from
within subject to tax NIT) PE,AE,PHHI
- On top of the salary she was given a
DMB. Considered an income from within
on Ys end not subject to tax as long as
within the limits provided for by law.
- If DMB beyond limits are given:
Tax consequence:
The excess will be considered as
M/S: FBT 32% FBT
R/F: everything will be subjected to NIT
coz everything will be treated as
compensation. The income will be treated
as compensation as well.
- Y paid her electric bills of course not
deductible. It is not one of the allowed
deduction for income compensation
earners.
- The payment of Y to PLDT, MERALCO
and MWSS income from within on their
end subject to NIT and VAT. (utility
expenses)
- Y is also liable for VAT pag nagbayad
siya kuryente.
- Y leases a house from A paying 5K for
rental. Inc on the part of A subject to NIT
the possible deduction would be
dependent on what kind of TP siya.
- Agreement is RTO 15k a month.
- Si Y may yaya she has a salary of 5k (not
taxable yung 5K since minimum wage) Y
may not claim the salary of her yaya as
deduction.
- DMB (income, within, DMB)
- Car received by Y: It depends,
if used for trade and business to benefit

because this is a capital expenditure. X

cannot claim this a deductible business
expense in lieu of this X may claim
depreciation.

X: deductible
Y introduced : MI 50k Maj 150k
Lessor si A(engaged in business of
leasing) he accepted rent from Y. On As
end such rent payment is income from
within but Y cannot claim as business
expenses the rental paid to A.
Ayaw na magrenta ni Y so rent to won
agreement. Subject to tax from within
NIT but not deductible as business
expense.
Sabi ni Y kay A bibilin nya bahay under a
deed of sale for 1 Million.
As to As end who is engaged in leasing
sold an OA so the income tax due is NIT.
As far as A is oncerned the house is not a
CA but an OA.
Can Y claim the 1M as deduction? No!
If you have 1 ER during 12 month period
of 1 year substituted filing is allowed. If 2
ER within 1 year and you have mixed
income (compensation income plus
business on the side) substituted filing is
not allowed.

3 basic req ID
1. You must have incurred the expenses during the year the deduction will be claimed;
2. The deduction must be related to the business or necessary in the trade or business
3. Reasonableness in the amount
Tip:
When you write avoid these words: If, nevertheless and however. (Analogous words) Always use the
active voice. Always subject 1st and verb. Avoid because and the use of shall. Use present tense talaga.