RR No. 16-2008: Implements the provisions of Section 34(L) of the Tax Code of 1997, as amended by RA No. 9504, on the Optional Standard Deduction allowed to individuals and corporations in computing their taxable income

Summary

RR No. 16-2008 implements Section 34(L) of the Tax Code of 1997, as amended by RA No. 9504, on the Optional Standard Deduction (OSD) allowed to individuals and corporations in computing taxable income.

Key points

1. Who may claim OSD. Resident citizens, non-resident citizens, resident aliens, and taxable estates and trusts may claim it in place of itemized deductions. Domestic corporations and resident foreign corporations may also claim it.
2. Amount and basis. For individuals, OSD is a maximum of 40% of gross sales or gross receipts, and cost of sales or cost of services is not deducted to find that basis. For corporations under Sections 27(A) and 28(A)(1) of the NIRC, it is not more than 40% of gross income, which excludes passive income already subject to final tax.
3. General professional partnerships. A GPP is not subject to income tax and may claim itemized deductions or OSD of up to 40% of gross income. Each partner reports a distributive share as gross income and may separately claim itemized deductions or OSD. A partner claiming itemized deductions cannot claim expenses already claimed by the GPP.
4. Election and irrevocability. The taxpayer signifies the OSD choice in the return, otherwise itemized deductions are considered availed. Once signified, the election is irrevocable for that taxable year and the return cannot be amended to shift to itemized deductions. Hybrid methods in one year are not allowed, though quarterly returns may use either method.
5. Records and financial statements. An individual claiming OSD does not submit financial statements with the return but keeps records of gross sales or gross receipts. A corporation still submits financial statements with its annual return and keeps records of gross income.
6. Transition for taxable year 2008. July 1, 2008 is treated as the start of the 40% OSD period. For an individual who chooses OSD in the annual return, January 2008 to June 30, 2008 uses 10% of gross income and July 1, 2008 to December 31, 2008 uses 40% of gross sales or gross receipts.

Who is affected

• Resident citizens, non-resident citizens and resident aliens
• Taxable estates and trusts
• Domestic and resident foreign corporations
• General professional partnerships and their partners

Deadlines and effectivity

• Effective July 6, 2008, the effectivity date of R.A. No. 9504
• July 1, 2008 treated as start of the 40% OSD period for taxable year 2008

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.