Using OSD on Income Tax Return

osdIn my blog article on The Income Tax of an I-Café Owner, OSD or Optional Standard Deduction was mentioned as one option that a taxpayer can use on his annual income tax return. The new Revenue Regulations No. 16-2008 dated November 26, 2008 will be implemented for the first time during this income tax season. The optional standard deduction (OSD) that a taxpayer can avail is increased from ten (10%) to forty (40%) as provided for by Republic Act No. 9504 dated June 17, 2008.

Again, although the provisions of RR No. 16-2008 cover all taxpayers in general, our discussions in this blog will center only on individuals who singly owned and personally manage his i-café business. Our purpose is for i-café owners who do their own bookkeeping and filing of income tax return to better understand his options under the new law and its implementing rules and regulations.

The OSD when chosen by an i-café owner who will file his annual income tax return (BIR Form 1701) this year will no longer require the attachment of a financial statement detailing how his taxable net income is arrived at. Also, unless the BIR Commissioner otherwise permits, the i-café owner will only have to keep records of his gross sales or receipts. Other books of accounts will no longer be necessary to keep.

We must note that the annual income tax return that a taxpayer will file this year covers the revenues of his i-café business last year. April 15th of each year is the deadline for filing the annual income tax return. Also, unless the BIR Commissioner otherwise permits, the taxpayer who opt for OSD in computing his taxable income will only be required to keep records of his gross sales or receipts. Other books of accounts will no longer be needed.

Republic Act No. 9504 was passed during the middle of the taxable year so the forty (40%) percent OSD can only be applied to the gross revenues or receipts that an i-café owner earned from July 2008 to December 2008. For the gross receipts from January 2008 to June 2008, the ten (10%) percent optional standard deduction will still apply.

For details regarding the provisions of R. A. No. 9504 and RR No. 16-2008, the documents can be browsed and/or downloaded from the links indicated above.

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