BIR has issued Revenue Regulations (RR) No. 2-2010 amending certain provisions of RR 16-2008 to further clarify the manner of claiming the Optional Standard Deduction (OSD) by General Professional Partnerships (GPPs) and their partners, as well as the manner of manifesting the election to claim to use OSD for taxable year 2009 in the filing of business income tax returns .
RR 16-2008 which took effect last July 6, 2008, refers to the forty percent (40%) OSD allowed for business individuals and corporations in computing their taxable income or their gross income respectively.
Under the new regulations, the type of deduction chosen by the GPP must be the same type of deduction that can be availed by the GPP partners.
The partners of the GPP shall not be permitted from claiming further deduction from their share in the net income once the GPP avails of the OSD in computing its net income.
Specifically, if the GPP claimed itemized deductions, the partners comprising it can only claim itemized deductions which are in the nature or ordinary and necessary expenses for the practice of profession which were not claimed by the GPP during the year.
Example of deductions include representation expenses incurred by the partner covered by receipts or invoice issued in his name; travelling expenses while away from home not liquidated by the partnership; depreciation of a car used in the practice of profession where said car is registered in the name of the partner and other similar expenses.
Lastly, the election to claim either the OSD or the itemized deduction for the taxable year must be signified in the income tax return filed for the first quarter of the taxable year adopted by the taxpayer. Once the selection is made, the same type of deduction must be consistently applied for all succeeding quarterly returns and in the final income tax return for the taxable year.
The OSD simplifies the filing of income tax returns and benefits, in particular, for business professionals and medium, small and micro entrepreneurs.