Tuesday, July 15, 2008 Tax notes: Optional standard deduction for corporations
REPUBLIC Act (RA) 9504, which took effect on July 7, 2008, grants additional tax relief to individual taxpayers, such as the exemption of minimum wage earners from the payment of income tax, and the increase in personal and additional exemptions.
In addition, the 10 percent optional standard deduction (OSD) allowed to an individual taxpayer engaged in business and practice of profession was also increased to 40 percent of gross sales or receipts.
The OSD is a scheme whereby a taxpayer is given the option to deduct from his gross revenue or gross income a lump sum equivalent to a percentage of such gross revenue or gross income for purposes of computing the net taxable income on which the income tax rate will be applied. This is in lieu of the itemized deduction scheme where the taxpayer lists down all his expenses and the corresponding amounts incurred to determine the amount of allowable deductions.
The option can be availed of on an annual basis and shall be irrevocable for that taxable year.
Furthermore, corporations subject to the regular corporate income tax under Sections 27(A) and 28(A)(1) of the Tax Code of 1997 are now given the option to avail the OSD at 40 percent of gross income. Previously, they were only allowed to claim itemized deductions in computing their taxable net income. (Source: Punongbayan & Araullo)
