June 22, 2010

Optional Standard Deduction For Single-Owned I-Café

In filing income tax return with the Bureau of Internal Revenue (BIR), there are two (2) methods of deducting expenses from which a single owner of an i-café business can choose. These are the itemized deduction method and the optional standard deduction method. The latter, the Optional Standard Deduction (OSD) which allows forty (40%) percent of i-cafe's gross sales to be deducted as operating expense is the simpler one to use.

If availed, OSD would allow the taxpayer to keep records only of his sales . Bookkeeping of expenses, capital investment and depreciation will no longer be necessary and hence, the services of an accountant or bookkeeper is no longer necessary. This is in contrast with the itemized deduction methods where the services of an experienced bookkeeper or accountant will be needed to maintain the business' books of accounts.

Roughly, the OSD method translates sixty (60%) percent of an i-café's total sales to be the gross profit of your business. From the gross profit figure, only your personal and additional exemptions are deducted to arrive at your net taxable income.

Using the 40% OSD and the maximum personal and additional exemptions of PhP150,000.00 of a married taxpayer with four (4) legal dependents and deriving income solely from his i-café , PhP250,000.00 total annual sales will be the benchmark or the lowest annual gross income that will not be subject to income. Any sales in excess of P250k will be subject to graduated income tax which can go from a low of five (5%) percent to as high as thirty-two (32%) percent.

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