Question & AnswerQ&A (BIR REVENUE REGULATIONS NO. 16-2008)
The regulation implements the provisions on Optional Standard Deduction (OSD) for individuals and corporations under Section 34 (L) of the Tax Code of 1997, as amended by RA 9504.
The persons covered include individuals (resident citizens, non-resident citizens, resident aliens, taxable estates and trusts) and corporations (domestic corporations and resident foreign corporations).
For individuals, the OSD is a maximum of 40% of gross sales or gross receipts during the taxable year. For accrual basis taxpayers, it's based on gross sales; for cash basis, on gross receipts. Cost of sales or cost of services is not deducted for determining OSD basis.
For corporations, OSD is up to 40% of gross income, where gross income means gross sales less sales returns, discounts, allowances, and cost of goods sold or cost of services.
Gross income means gross sales less sales returns, discounts and allowances, and cost of goods sold for sellers of goods; for sellers of services, it's gross receipts less sales returns, allowances, discounts, and cost of services.
No, passive incomes that have been subjected to a final tax at source are excluded from the gross income for computing the 40% OSD.
Yes, a GPP may claim itemized deductions or opt for the OSD allowed to corporations. However, it's not a taxable entity; the partners pay income tax on their distributive shares.
Yes, each partner may claim either itemized deductions or OSD on their share of the net income, provided they do not double-claim expenses already deducted by the GPP.
No, once the taxpayer elects to avail of OSD in their tax return for a taxable year, the election is irrevocable for that year.
No, individual taxpayers who claim OSD are not required to submit financial statements but must keep records related to gross sales or gross receipts, unless otherwise permitted by the Commissioner.
No, taxpayers must choose either itemized deductions or OSD for the entire taxable year and cannot use a hybrid method.
For 2008, the 40% OSD applies only from July 1, 2008 (effectivity of RA 9504). Before this, the 10% OSD on gross income applies. Taxpayers can choose itemized or OSD for the year but cannot mix methods for different periods except as provided in the transitional rules.
The regulation took effect on July 6, 2008, the effectivity date of RA 9504.