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Chapter 13-C Income Tax

The document outlines the Optional Standard Deduction (OSD) which serves as a substitute for itemized deductions for taxpayers, allowing a presumed deduction based on a percentage of gross sales or income. It specifies who can claim OSD, the percentage applicable for individual and corporate taxpayers, and the rules for determining OSD. Additionally, it discusses the treatment of General Professional Partnerships (GPP) and the differences between share in net income and actual profit distribution.

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Jhuryne Alipoyo
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4 views19 pages

Chapter 13-C Income Tax

The document outlines the Optional Standard Deduction (OSD) which serves as a substitute for itemized deductions for taxpayers, allowing a presumed deduction based on a percentage of gross sales or income. It specifies who can claim OSD, the percentage applicable for individual and corporate taxpayers, and the rules for determining OSD. Additionally, it discusses the treatment of General Professional Partnerships (GPP) and the differences between share in net income and actual profit distribution.

Uploaded by

Jhuryne Alipoyo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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OPTIONAL

STANDARD
CHAPTER 13-C
DEDUCTION
AT IS OPTIONAL STANDARD DEDUCTION (OSD)?
• Is in lieu of the itemized deductions including NOLCO
allowable under the NIRC and special laws
• The allowable deduction of the taxpayer is simply
presumed as a percentage of the gross sales or receipts for
individuals and gross income for corporations
• No need to support every item of expense
• Does not relieve the responsibility to deduct withholding tax
on certain income payments
WHO CAN CLAIM OSD?
As a rule, all taxpayers subject to tax on taxable
net income can claim deductions except:

1. Non-resident alien engaged in trade or business


(NR-ETB)
2. Taxpayers mandated to use itemized
deductions
MANDATORY ITEMIZED DEDUCTIONS
1. Corporations mandated to use the itemized deductions
:
. a. Exempt GOCCs and non-stock, nonprofit corporations
with no taxable income
. b. Those with income subject to special/preferential tax
rates
. c. Those with income subject to regular corporate
income tax and special preferential tax
MANDATORY ITEMIZED DEDUCTIONS
2. Individual taxpayers mandated to use itemized
deductions:
. a. Exempt individuals under the NIRC and special laws
with no taxable income
b. Those with income subject to special/preferential
tax rates
. c. Those with income subject to regular income tax and
special/preferential tax
3. Non-resident alien not engaged in trade and business
PERCENTAGE OF
1.OSD
Individual taxpayers - 40% of total
sales/revenues/receipts/fees
• Selling goods under accrual basis - 40% of
gross sales
• Selling goods under cash basis - 40% of
gross receipts
• Services under accrual basis - 40% of
revenue

2. Corporate taxpayers - 40% of gross income


THE INDIVIDUAL
OSD
-deemed to replace all items of
deductions against gross receipts of gross
sales

THE CORPORATE
OSD
-deemed to replace all items of
deductions from gross income
TABLE OF COMPARISON ON OSD
Individual OSD Corporate OSD
replaces replaces

Cost of sales or cost of YES NO


services

Regular allowable itemized YES YES

Special allowable YES YES


deductions

Net operating loss carry over YES YES

Personal exemptions NO NOT APPLICABLE


RULES ON DETERMINATION OF OSD
INDIVIDUAL TAXPAYERS CORPORATE TAXPAYERS

• Gross Sales - the • Gross Income - the gross


accounting concept of net sales less sales return,
sales as clarified by RR16- discounts and allowances
2008 and cost of sales or gross
• Gross Receipts - amounts
receipts, less sales returns,
actually ot constructively discounts and allowances
received during the and cost of services
• Amendment - RA 9504 -
taxable year or amounts
all gross income subject
earned as gross revenue
to the regular income tax
during the taxable year
OSD FOR INDIVIDUAL TAXPAYERS
FORMULA
Net Sales/Revenues/Receipts/Fees p xxx, xxx
Add: Other taxable income from
operation not subject to final tax P xx, xxx
Total Sales/Revenues/Receipts/Fees P xxx, xxx
Multiply by: OSD percentage 40%
Optional Standard Deduction P xx, xxx
OSD FOR CORPORATE TAXPAYERS
FORMULA
Net Sales/Revenues/Receipts/Fees p xxx, xxx
Less: Cost of sales or services P xxx, xxx
Gross Income from operations P xx, xxx
Add: Other taxable income not subject
to final tax P xxx, xxx
Total Gross Income P xxx, xxx
Multiply by: OSD percentage 40%
Optional Standard Deduction P xx, xxx
OTHER TAXABLE INCOME FROM OPERATIONS
NOT SUBJECT TO FINAL TAX
Establishment Primary Income Other Operating Income

Consignment commission;
Retail Stores Sales of Goods
Display rack rental

Manufacturing Business Sales of Goods Sale of scrap

Installment dealers Sales of Goods Interest Income

Income from seminars


Interest from client notes
Accounting Firm Professional Fees
Reimbursement for out-of-pocket
expenses
NON-OPERATING
INCOME
1. Gains from dealings in properties
2. Distribution from a GPP, exempt, co-
ownership and taxable estates or trusts
3. Casual active income
4.Passive income or those not connected to the
primary or secondary activities of the business
sucb as:
a. Interest income on advances to employees
b. Investment income subject to regular tax
OSD FOR GENERAL PROFESSIONAL
PARTNERSHIPS
• not a taxable entry
• merely viewed as a “pass-through” entity where
income is ultimately taxed to the partners
• each partner shall report as gross income his
distributive share, actually or constructively
received in the net income of GPP
DETERMINATION OF NET INCOME OF
•
GPPcomputed in the same manner as a corporation

DEDUCTION AGAINST PARTNER’S SHARE IN


• can claim
NET INCOME itemized deductions in the nature of
ordinary and necessary expense for the practice
of profession not claimed by the GPP in
computing its net income during the year, which
by agreement are non-reimbursable or non-
chargeable to the GPP
GPP DEDUCTION RULES

GPP mode of Partner’s mode of


Status
deduction deduction

Itemized Itemized Allowed

Itemized OSD Not allowed

OSD Itemized Not allowed

OSD OSD Not allowed


SHARE IN THE NET INCOME VS ACTUAL PROF
DISTRIBUTION
• Share in net income is computed from the net
income of the GPP as determined by tax rules
• Actual profit distribution is computed from net
income as determined by GAAR; the actual
amount of profit that will be transferred to the
capital of each partner
DIFFERENCE:
1.Deductibility limits or requirements on some items
of deductions
2. Use of OSD by the GPP
THANK YOU

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