BIR Revenue Regulations on Optional Standard Deduction

Individuals: resident citizens, non-resident citizens, resident aliens, taxable estates and trusts.
Corporations: domestic corporations and resident foreign corporations.

Maximum 40% of gross sales or gross receipts for the taxable year.
Basis: gross sales if accrual accounting; gross receipts if cash basis accounting.
Cost of sales or services not deductible when computing OSD base.
For other accounting methods, gross sales/receipts determined accordingly.

Maximum 40% of gross income.
Gross income = gross sales less returns, allowances, discounts, and cost of goods sold.
Definitions:
- Gross sales include income taxable under Section 27 (A).
- Cost of goods sold includes purchase/production costs plus direct expenses.
- For services, gross income equals gross receipts less returns and cost of services.
- Cost of services includes salaries, employee benefits, depreciation, rentals, and supplies but excludes interest (except banks).
Gross receipts mean amounts actually or constructively received; if accrual method, amounts earned.
Passive income subject to final tax excluded from gross income for OSD computation.
Other accounting methods to follow applicable rules.

GPP itself not subject to income tax; partners taxed individually.
GPP computes net income like a corporation; may claim itemized or OSD (max 40%).
Partners report distributive share of net income as gross income.
Partners may claim itemized deductions or OSD on their share, ensuring no double deduction.
Four election scenarios for GPP and partners concerning OSD or itemized deductions.

Must signify election of OSD in tax return.
Election is irrevocable for the taxable year.
No amendment allowed to switch from OSD to itemized deductions once filed.
Individual taxpayers claiming OSD are not required to submit financial statements but must keep sales/receipts records.
Corporations must still submit financial statements and maintain records.
Quarterly returns may use either deduction method, but the final annual return must adopt one.
Hybrid method combining OSD and itemized deductions within one taxable year not allowed.

RA 9504 became effective July 6, 2008; July 1, 2008 used for transition ease.
For individuals, OSD before July 1 applied at 10%, after at 40%.
Example illustrates the prorated application for taxpayers switching methods during 2008.
Choice of deduction method must be for the whole taxable year; no hybrid method.
Corporations allowed itemized deductions before July 6, 2008 and OSD after.