Computation of 2008 Income Tax Using OSD

income_tax1Let us now compute the income tax of an i-café owner for the gross sales he had for 2008 using the Optional Standard Deduction (OSD) as provided for under Republic Act No. 9504 and its implementing rules and regulations contained in Revenue Regulations No. 16-2008. To make it simple, let us assume that the taxpayer is  a married individual but without any child yet and only one of the spouses is deriving gross income. He is the registered single owner of the i-café business from which he solely derived his gross income.

Let us assume further that the gross income of the i-café owner for the first half of 2008 (January to June) was PhP 150,000.00 and cost of services amounting to PhP 100,000 and another PhP 150,000.00 for the period of July to December 2008.  We will now show the computation of taxpayer’s 2008 income tax based on Revenue Regulations No. 16-2008 which provides for the 40% OSD on his July to December gross income and Revenue Regulations No. 10-2008 for the allowed personal exemptions. The OSD for his January to June 2008 gross income will still be 10% only as provided for in the old revenue regulations.

Item > P A R T I C U L A R S > Jan – June 2008 > Jul – Dec 2008 > T O T A L

01        Gross Income                   P 150,000               P 150,000         P 300,000

02       Cost of Services                (100,000)                   – - o – -            (100,000)

03        O. S. D.                              (5,000)                     (60,000)          (65,000)

03        Net Income                           45,000                   90,000            135,000

04        Personal Exemption           (16,000)                (25,000)         (41,000)

05        Taxable Income                  29,000                    65,000           94,000

Therefore, income tax due according to Rates of Tax on Taxable Income of Individuals per Sec. 2 of R.A. No. 9504 will be PhP 8,500 plus 20% of excess over PhP 70,000 or PhP 8,500 + 0.20(94,000 – 70,000) =  PhP 13,300.00

We must take note that the 40% Optional Standard Deduction (OSD) was implemented only for the first time and it was imposed only on gross income earned beginning July 2008.  Figures will definitely be different in 2009 when the full 40% OSD will be applied to the gross income of the taxpayer for the whole year.