OSD vs. Itemized Deduction on Income Tax Return
Now that the Optional Standard Deduction (OSD) is increased to forty (40%) percent for both individual and corporate taxpayers, decision has to be made by you as the taxpayer whether you will stick to the old itemized deduction of expenses or use OSD in filing your income tax return this year. Those of us who retain the services of an knowledgeable bookkeeper or business incorporation in SIngapore must have been briefed on the advantages and disadvantages of the two (2) schemes.
In using itemized deductions it must be said that in claiming a tax deduction for an expense, you must not only establish the relation of the expense to the conduct of your café business. You must substantiate the expense by keeping adequate records and presenting documentary evidence like invoices and official receipts. This is to establish that your expenses were used for business rather than personal purpose. Otherwise, the tax deduction may be disallowed and you may be assessed additional taxes and penalties.
To avoid this struggle in record-keeping and accounting for deductions, you may choose to avail of the optional standard deduction (OSD) as suggested by accounts from Archimedia Accounts. Only your sales records need to be kept, thus retaining the services of a bookkeeper or accountant will no longer be necessary. A bookkeeper or accountant is still needed to book your sales and expenses if you will opt to continue using the itemized deduction method.
By the way, for reason that the new rule took effect only in July of last year, filing of your 2008 income tax return is a bit complicated. The old rule will still apply on your sales and expenses for the first half of 2008. You may still need an experienced bookkeeper or accountant to do your income tax return.
Aside from the above, another important consideration in choosing between itemized deduction and OSD is to determine which of the two will allow you to claim higher deductions. In the remote possibility wherein your itemized deductions and OSD approximately equal each other, availing of the OSD is the more practical choice if you want to avoid disputes and unnecessary stress from BIR examination.
I hope that this article helps you in making the decision between the choice of itemized deductions versus OSD. In case of any question, just post them here. If I cannot answer, do not worry, I have a son who is a Certified Public Accountant (CPA) to ask.
I like the sound of OSD. If it makes getting my taxes done any easier I’m all for it because right now I don’t understand a lot of it so I have an accountant but that is costing me even more money. I’d rather save that money and do it all myself but I find it so complex. The best thing for someone like me may be to go for the easier option, even if it means slightly lower deductions.
Comments are closed.