![]() ![]() If the corporation used the OSD instead of the itemized deduction in its 1st quarter return, it could not later use the itemized deductions for the Annual Income Tax Return. The election of the OSD must be communicated in the 1st quarter return. Likewise, Gross Income for OSD purposes does not include income items already subjected to Final Tax or Capital Gains Tax. OSD for corporations is in all respects similar to the OSD available to an individual earning business income or income from a profession, EXCEPT that the basis of the 40% OSD is the gross income, which is net of the cost of sales or services (similar to Minimum Corporate Income Tax or MCIT), while for individuals, the basis is gross sales or receipts, before any such costs. The Optional Standard Deduction (OSD) 10 is 40% of Gross Income. Losses from the sale of property under certain conditions 2.Life insurance premium payments covering any employee.Expenses for construction, improvement, or renovation of a property to increase its value.On the other hand, taxpayers CANNOT deduct the following expenses from their gross income 9: Depletion of oil and gas wells and mines.Depreciation (decrease in value of property used in business such as vehicles, equipment, etc.).Actual bad debts (receivables from customers or loss on securities held as capital assets that cannot be collected or recovered).Donations to the Philippine government, charitable institutions, religious groups, educational/cultural organizations, etc.Losses from the regular operation of the business, sale of capital assets, etc.Tax payments related to the taxpayer’s business or work, except for the income tax, estate tax, donor’s tax, etc.Interest on debts related to the taxpayer’s business or profession.Business or professional expenses such as salaries, overhead expenses, and costs of production, travel, entertainment, etc.Itemized deductions include the following: Learn More: Itemized Deductions: A Comprehensive Guide for Philippine Taxpayers The BIR requires these expenses to be directly related to the operation, management, and development of the taxpayer’s business or professional practice. Itemized deduction 8 involves deducting from gross income all legitimate business expenses incurred during the taxable year. Self-employed and mixed-income taxpayers can choose between two methods of deduction: itemized deduction and optional standard deduction. The basic formula for income tax purposes is:Īdd: Other income not subject to final tax or tax exemptionĮquals: Taxable Income What Can Be Deducted From Gross Income? If you’re a self-employed or mixed-income taxpayer, subtract the deductions allowed by the BIR from your gross income to get your taxable income. ![]() It determines how much income tax must be paid in a given year. Taxable income is the taxpayer’s gross income less allowable deductions.
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