May 21, 2010

The Income Tax Of An I-Café Business

April of each year is the time for computing, filing and paying the annual income tax derived from compensation and/or business of every citizen of this country including an i-café owner. Many questions are being asked in various forums regarding the subject and we will try to answer some of them in this article.

The contents of this article are for the i-café owners who singly owned their registered business. For filing their annual income tax the document to use for the purpose is BIR Form 1701 - Annual Income Tax Return for Self-Employed, Professionals, Estates and Trusts. It is presumed that those who use this form had dutifully filed their quarterly income tax returns using BIR Form 1701Q.

The first question that is often asked often see in various forums is whether a Certified Public Accountant (CPA) is needed in accomplishing BIR Form 1701. The answer to the question is only those whose gross annual income exceeds PhP600,000 are required to avail of the services of  CPAs in preparing their financial statements which will form part of the BIR Form 1701 that they will file.

The next question is usually about how much to they have to pay as income tax. The simple answer is that the income tax of a self-employed café owner will range from five to thirty-two (5 - 32%) percent of his net income, a figure which will be arrived at after deducting the allowable expenses like space rental, cost of electricity, telephone and internet and others allowed by law.

One very important decision that an individual self-employed taxpayer has to make in filing his annual income tax return is the method of deduction he will use. He can opt for Optional Standard Deduction (OSD) of 40% of his gross income which is very simple and everybody must find no difficulty in using. Or he can go for "itemized deductions" which is a bit complex and may require a competent bookkeeper if not an accountant to accomplish his tax return.

We shall discuss more about OSD and itemized deductions in our succeeding articles. Take note that each has its own advantage depending on how you use the method. There should be one that would better fit your i-café business.


  1. With regards to the OSD or itemized deductions, IS THIS OUR OPTION to take?

    About the Daily sales of the shop, is it advisable that we have to keep list of our daily clients for the possible names (just like products sold) in case BIR will require? Do you think they will look for this in the future?

    Or simply PC# ? will appear in the receipt NOT THE NAME of the client... (??) time / rental

  2. @Ms Glenn - Sorry for the delayed to your queries. We now have OSD as the topic of an article at Please go over it and decide for yourself if OSD is the better option for you.

    Keeping sales records is a must for any business. I don't think you need to keep track of your customer's names. BIR will require you to show your official receipts (ORs) if ever they come for an inspection of your business.

  3. can you provide steps on how to file and compute annual income tax?

    1. Thank you for visiting my blog. It has been a while that I no longer file income tax return. Computing and filing a business income tax is normally done by a tax service provider (bookkeeper).


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