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Availability of Optional Standard Deduction (OSD) and 8% Preferential Tax Rate

Posted by on May 27th, 2022

Election of OSD and 8% Preferential Tax Rate for availing taxpayers on the Filing of the 1st Quarter Income Tax Return

Pursuant to Section 34(L) of the Tax Code, individuals or corporations may avail of Optional Standard Deduction (OSD) in lieu of itemized deductions which may be advantageous to availing taxpayers as long as it is properly elected or signified on the filing of the first quarterly income tax return (BIR Form 1702Q/1701Q). Such election will be irrevocable for the whole taxable year.

Additional guidelines are also stated in Revenue Regulation (RR) No. 16-2008 which implements the provisions dealing with the OSD. For corporate taxpayers, the cost of sales is deductible before the computation of OSD which shall be computed based on 40% of the gross income while for individuals, it is based on the gross sales or gross receipts.

Furthermore, individual taxpayers may avail 8% preferential tax rate whose gross sales/receipts for the year do not exceed P3,000,000 (VAT threshold).

A few advantages of electing OSD and 8% preferential tax rate are lesser requirements on bookkeeping and substantiation, cost efficient, and less exposure to examination. However, not all individual taxpayers are allowed to elect both tax schemes due to income threshold and business intricacies, thus everyone is advised to seek a guidance from the accountants near you.

For everyone’s guidance and perusal.    

DISCLAIMER: The advisory is not a substitute for an expert opinion and is purely a general research that may have not considered the entirety of other related topics. Any tax and/or compliance advice is not intended or written by the author to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on by the regulatory bodies, or (ii) promoting, marketing, or recommending to another party any matters addressed herein.

The opinion or advice expressed in this advisory is based on the facts and circumstances gathered. Any inaccuracy in any of the assumptions set forth above may have the effect of changing all or part of this report, and this report may not apply. The advice is based on our interpretation of the provisions of the Code, the Revenue Regulations promulgated and issued by the tax bureau, BIR positions as set forth in published Revenue Rulings, other pronouncement, orders and circulars, and judicial decisions in effect on the date of this report, any of which could be changed at any time. Any such changes may be retroactive and could significantly modify the statements and opinions/ advice expressed herein In effect, this might render the advisory obsolete or incorrect in partial or in full. We undertake no obligation to advise you of changes that may hereafter be brought to our attention.