Deductions: Optional vs Itemized from Gross Income
By: Pamela Ruth G. Calog, CPA
2 months ago
A taxpayer engaged in business or in the practice of profession shall choose either the itemized or optional deduction.
There shall be allowed as deduction from Gross Income all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are directly attributable to, the development, management, operation and/or conduct of the trade, business or exercise of a profession.
Itemized Deductions include the following:
Depletion of Oil and Gas Wells and Mines
Charitable Contributions and Other Contributions- Research and Development
Optional Standard Deduction (OSD)
A maximum of 40% of their Gross Sales or Gross Receipts shall be allowed as deduction in lieu of the itemized deduction. This type of deduction shall not be allowed for Non-Resident Aliens (NRAs) engaged in trade or business. Thus, NRAs engaged in trade or business can only avail of the itemized deductions.
For Domestic and Resident Foreign Corporation, OSD shall be based on Gross Income, which means Gross Sales less Sales Returns, Discounts and Allowances and Cost of Goods Sold.
For General Professional Partnership, OSD may only be availed once, either by the partnership or partners comprising the partnership.
Frequently Asked Questions
How to choose itemized or optional deduction in the Income Tax Return (ITR)?
Choose either Itemized Deduction or OSD in the ‘Method of Deduction’ Item of the ITR. The chosen method of deduction used in the first quarter of the year shall be consistently applied throughout the year.
What is the implication in choosing itemized or optional deduction in the ITR?
The choice made in the return is irrevocable for the taxable year covered.
Is the CPA Certificate required on both methods of deductions?
No, the CPA Certificate is only required if the gross quarterly sales, earnings, receipts or output exceed Php 3,000,000 for taxpayers who opted for Itemized Deduction.
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