#AskTheTaxWhiz: What are deductions, exemptions from gross income?

Now that the year is close to ending, the time to prepare annual returns also approaches. With the expansive changes due to the Tax Reform for Acceleration and Inclusion (TRAIN) law, is there anything to keep in mind when it comes to deductions and expenses?

The most notable change under the TRAIN law is the removal of the personal and additional exemptions. These refer to 3 items only – the basic exemption of P50,000, the P25,000 exemption for each dependent, and the personal exemption of nonresident alien individuals.

These changes were implemented to offset the lowering of personal income tax and to simplify claims for exemption by making the first P250,000 taxable income-exempt for all individuals.

Is it true that the premium on health insurance is no longer taxable? What is the basis of this?

Yes, it is no longer taxable. It was initially made taxable under Revenue Memorandum Circular (RMC) No. 50-2018. According to the RMC, the premium payments for health cards were subject to a P90,000 threshold. Amounts in excess of that threshold would have been taxable.

But the Bureau of Internal Revenue (BIR) recently reversed that ruling. Last November 29, the BIR released RMC No. 96-2018, stating that the provisions on the taxability of health card premiums are to be removed.

Notably, RMC No. 96-2018 specifies that only the pertinent provisions relative to group health insurance are to be removed. As such, individual premiums would still be considered a fringe benefit which is subject to tax.

Other types of deductions, such as expenses, will require you to substantiate your claim. More often than not, failure to do this is the cause of unnecessary penalties. If you are ever audited by the BIR with claims you cannot prove, you might be subjected to fines more expensive than your claimed deductions.

If you want to know how you can prepare for the BIR audit, you can schedule an appointment here. For more inquiries, you can also reach us at consult@acg.ph or via (02) 622-7720. – Rappler.com

Mon Abrea, popularly known as the Philippine Tax Whiz, is one of the 2017 Outstanding Persons of the World, a Move Awards 2016 Digital Mover, one of the 2015 The Outstanding Young Men of the Philippines (TOYM), an Asia CEO Young Leader of the Year, and founding president of the Asian Consulting Group (ACG) as well as the Center for Strategic Reforms of the Philippines (CSR Philippines). You may email him at consult@acg.ph or visit www.acg.ph for tax-related concerns.