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.


  1. Itemized Deductions


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:


  1. Expenses

  2. Interest

  3. Taxes

  4. Losses

  5. Bad Debts

  6. Depreciation

  7. Depletion of Oil and Gas Wells and Mines

  8. Charitable Contributions and Other Contributions- Research and Development

  9. Pension Trusts


  1. 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.



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