RIT: OPTIONAL STANDARD DEDUCTION

OSD for Individuals

40% of gross receipts or gross sales

1. 40% of gross income subject to regular tax

Gross Sales / Receipts	xx
x rate	40%
OSD	xx

Lahat ng expenses papalitan (COGS, RAID, SAID, NOLCO)

OSD for Corporation

40% of gross income subject to regular tax

Gross Sales / Receipts	xx
COGS	(xx)
Gross Income - Operation	xx
Other Income	xx
Gross Income	xx
x Rate	40%
OSD	xx

Hindi mapapalitan yung COGS, (RAID, SAID, NOLCO ang mapapalitan)

Mandatory itemized deductions

1. Taxpayers that are exempt with no taxable income

2. Taxpayers that are subject to special/preferential tax rates

3. Taxpayers subject to mixed tax rates

Xerxes Department Store reported the following income and deductions during the period:

Gross receipts (80% of revenue from commissions)	4,000,000
Less: Cost of services (90% paid and 10% accrued)	1,500,000
Gross income from operations	2,500,000
Add: Other income from operations - rentals (100% collected)	300,000
Total operating income	2,800,000
Add: Non-operating income
Gain on sale of machinery	300,000
Interest income on deposit, net	20,000
Dividend income from foreign corporation	30,000
Gain on sale of domestic stocks	50,000
Total gross income	3,200,000
Less:
Ordinary deductions (80% paid and 20% accrued)	1,500,000
Special deductions	300,000
NOLCO from prior years	200,000
Net Amount	1,200,000

Compute the OSD assuming that

The accounting method employed is	Proprietorship	Corporation
Cash Basis
Accrual Basis

PROPRIETORSHIP	Cash Basis	Accrual Basis
Gross Receipts	4,000,000	5,000,000 (4M / 80%)
Rental Income	300,000	300,000
Total Gross Receipts	4,300,000	5,300,000
x rate	40%	40%
OSD	1,720,000	2,120,000
Total Gross Receipts	4,300,000	5,300,000
Other Income:
Gain on sale of machinery	300,000	300,000
Dividend income from foreign corporation	30,000	30,000
OSD	(1,720,000)	(2,120,000)
TNI	2,910,000	3,510,000

CORPORATION	Cash Basis	Accrual Basis
Gross Receipts	4,000,000	5,000,000 (4M / 80%)
COGs	(1,350,000)	(1,500,000)
Gross Income - operations	2,650,000	3,500,000
Other Income:
Rental Income	300,000	300,000
Gain on sale of machinery	300,000	300,000
Dividend income from foreign corporation	30,000	30,000
Gross Income	3,280,000	4,130,000
x rate	40%	40%
OSD	1,312,000	1,652,000
Gross Income	3,280,000	4,130,000
OSD	(1,312,000)	(1,652,000)
TNI	1,968,000	2,478,000

Mr. Gongyo is an accounting practitioner in his firm. He is also a partner in a general professional partnership with a 30% interest. The following income and expense figures for him and the partnership are recorded in 2021:

	Mr. Gongyo	Partnership
Professional fees	3,000,000	6,000,000
Less: Direct service costs	1,200,000	2,000,000
Gross income from operations	1,800,000	4,000,000
Add: Interest from deposit	50,000	80,000
Total income	1,850,000	4,080,000
Less: Operating expenses	350,000	1,080,000
Net income	1,500,000	3,000,000

Mr. Gongyo incurred P50,000 expense in discharging his duties in the partnership but is non-chargeable to the partnership per agreement.

Required:

1. Compute the taxable income of Mr. Gongyo assuming

   a. Mr. Gongyo and the GPP opted to use itemized deduction

   b. Mr. Gongyo and the GPP opted to use OSD

   c. Mr. Gongyo opted to use OSD

   d. The GPP opted to use OSD

2. Compute the taxable income of Mr. Gongyo and the partnership assuming the latter is a general co-partnership

a.

	Mr. Gongyo	Partnership
Professional fees	3,000,000	6,000,000
Less: Direct service costs	1,200,000	2,000,000
Gross income from operations	1,800,000	4,000,000
Add: Interest from deposit	—————	80,000
Less: Operating expenses	350,000	1,080,000
Net income - operation	1,450,000	3,000,000
Income from GPP (3M x 30%)	900,000
TNI	2,350,000

b.

	Partnership
Professional fees	6,000,000
Less: Direct service costs	2,000,000
Gross Profit	4,000,000
Other Income: Interest Income	80,000
Gross Income	4,080,000
Less: OSD (4,080 x 40%)	1,632,000
Net Income	2,448,000

	Mr. Gongyo
Professional fees	3,000,000
Less: OSD (3M x 40%)	1,200,000
Gross Income	1,800,000
Income from GPP (2,448K x 30%)	734,400
TNI	2,534,400

c.

	Mr. Gongyo
Professional fees	3,000,000
Less: OSD (3M x 40%)	1,200,000
Gross Income	1,800,000
Income from GPP (3M x 30%)	900,000
TNI	2,700,000

d.

	Mr. Gongyo
Professional fees	3,000,000
Less: Direct service costs	1,200,000
Gross income from operations	1,800,000
Add: Interest from deposit	—————
Less: Operating expenses	350,000
Net income - operation	1,450,000
Income from GPP (2,448K x 30%)	734,400
TNI	2,184,400

	Mr. Gongyo	Partnership
Professional fees	3,000,000	6,000,000
Less: Direct service costs	1,200,000	2,000,000
Gross income from operations	1,800,000	4,000,000
Add: Interest from deposit	—————	—————
Less: Operating expenses	350,000	1,080,000
Net income - operation	1,450,000	2,920,000

Ms. Malou compiled her income and expenses in the immediately preceding year as follows:

Compensation, net of P48,000 income taxes	552,000
Sales	800,000
Dividends	28,000
Interest from client's notes	20,000
Total revenue	1,400,000
Less: Expenses
Discounts, returns and allowances	12,000
Purchases, net of P12,000 increase in inventory	488,000
Business expenses, including P54,000 quarterly income taxes	204,000
Net income	696,000

Assuming she opted to use OSD, compute the following:

1. Optional Standard Deduction

2. Taxable Income Using Itemized Deduction

1. OSD

Compensation Income	600,000
Sales	800,000
Less: Discounts, returns and allowances	12,000
Net Sales	788,000
Other Income: Interest Income	20,000
Total	808,000
Less: OSD (808 × 40%)	323,200
Net income - Operation	484,800
Compensation Income	600,000
Net income - Operation	484,800
Taxable Net Income	1,084,800
Income Tax Due	173,700
Less: Tax Credit
WHT-C	48,000
QTR Income Tax	54,000
Income Tax Still Due	71,700

2. Itemized

Compensation Income	600,000
Sales	800,000
Less: Discounts, returns and allowances	12,000
Net Sales	788,000
COGs (500 - 12) since net - COGS	488,000
Gross Income	300,000
Other Income: Interest Income	20,000
Total	320,000
Less: Ordinary Deduction (204 -54)	150,000
Net income - Operation	170,000
Compensation Income	600,000
Net income - Operation	170,000
Taxable Net Income	770,000
Income Tax Due	96,500
Less: Tax Credit
WHT-C	48,000
QTR Income Tax	54,000
Income Tax Still Due (Refund)	(5,500)