Chapter 13C - Optional Standard Deduction
Chapter 13C - Optional Standard Deduction
Chapter 13C - Optional Standard Deduction
Discussion Questions
1. What is optional standard deduction?
2. Who can claim OSD? Who cannot claim OSD?
3. Explain the distinction between an operating income and a non-operating income
4. Discuss the OSD base for an individual taxpayer and the OSD base for a corporate taxpayer.
5. Discuss the rules of OSD for a general professional partnership and the partners.
True or False
1. The optional standard deduction is presumed unless the taxpayer signified in his return his
intention to claim itemized deductions.
2. Unlike individual taxpayers, corporations opting for OSD can claim deduction for cost of goods
sold or cost of services.
3. OSD is in lieu of all deductions against gross income including personal exemptions.
4. Individuals can claim OSD up to 40% of gross sales or receipts or gross income.
5. Taxpayers opting to use the OSD are not required to submit financial statements
6. Taxpayers may use the OSD for quarterly returns, then use the itemized deductions for the
annual return.
7. The taxable net income of individuals is 60% of their gross sales or receipts.
8. Corporate taxpayers opting to use OSD will have taxable income equivalent to 60% of their
gross income.
9. "Gross sales" is net of sales returns, allowances, and discounts.
10. "Gross receipts" include other receipts incidental to the primary operations of the business.
11. 11. Gains in dealings in properties are included in gross sales or receipts.
12. Corporate OSD is 40% of operating and non-operating gross income excluding only those
subject to final tax or capital gains tax and exempt income.
13. For taxpayers using the accrual basis in the sales of services, gross receipts shall mean
revenue.
14. Administrative and selling expenses are included in "cost of services."
15. A partner can claim itemized deduction against his share in the net income of general
professional partnership provided the partnership is using the OSD.
16. A partner can claim OSD out of his share in the net income of a general professional
partnership.
17. A partner can claim OSD out of his share in the net income of a general professional
partnership provided the partnership is not using the OSD.
18. No deduction of whatever nature is allowed against compensation income, except mandatory
deductions and exempt benefits.
19. Net operating loss carry-over and net capital loss carry-over are items deductions; hence, both
are not claimable simultaneously with OSD.
20. The option to elect OSD may result into a net operating loss carry over.
2. Resident alien
3. Non-resident citizen
4. Non-resident alien
7. Special corporation
9. Business partnership
Required:
Determine the Optional Standard Deductions assuming the taxpayer is:
1. An individual
2. A corporation
Required:
Determine the net income of the taxpayer under each of the following under the OSD:
Taxpayer Cash Basis Accrual Basis
1. Individuals
2. Corporations
Exercise Drill No. 4
The income statement of a taxpayer which opted for OSD is disclosed as follows:
Sales, net of returns, allowances P5,000,000
and discounts 3,000,000
Less: Cost of sales P2,000,000
Gross income from operations
Add: Other income P 100,000
Gain on sale of machinery 92,000 192,000
Gain on sale of domestic stocks
Total gross income P2,192,000
Less: Deductions 1,300,000
Net income P 892,000
Required:
Compute the optional standard deductions assuming the taxpayer is:
1. an individual taxpayer
2. a corporate taxpayer
3. Which of the following individuals engaged in business cannot claim optional standard deduction?
a. Resident citizen
b. Non-resident citizen
c. Resident alien
d. NRA-NETB
10. Corporate OSD is in lieu of all expenses such as the following except
a. Cost of sales or cost of services
b. Ordinary allowable itemized deductions
c. Special itemized allowable deductions
d. Net operating loss carry over
11. Individual OSD is in lieu of all expenses, such as but not including
a. cost of sales or cost of services.
b. ordinary allowable itemized deductions.
c. special itemized allowable deductions.
d. net capital loss carry over.
8. For purposes of the OSD, which is not deducted in the determination of gross receipts?
a. Sales returns
b. Allowances
c. Discounts
d. Cost of services
11. In the determination of the distributive net income of the general professional partnership,
a. Partners can claim OSD on their share in the net income of a general professional
partnership.
b. Partners can claim OSD on their share in the net income of a general professional
partnership provided the latter uses itemized deductions.
c. Partners can claim OSD on their share in the net income of a general professional
partnership provided the latter uses OSD.
d. Partners cannot claim OSD on their share in the net income of a general professional
partnership.
12. Which is correct with respect to the deduction claimable by a partner against his share in the
distributive net income of a general professional partnership?
a. The partner can claim OSD provided the general professional partnership also claims OSD.
b. The partner can claim OSD provided the general professional partnership also claims OSD.
c. The partner can claim itemized deduction provided the general professional partnership also
uses itemized deductions.
d. The partner can claim itemized deduction provided the general professional partnership
does not use itemized deductions.
13. Individual income taxpayer must indicate his or her option to claim OSD on
a. the first quarter return during the year.
b. or before July 1 of the current year.
c. the annual income tax return.
d. annual or quarterly return at his or her option.
14. Corporate income taxpayers must indicate their options to claim OSD on
a. the first quarter return during the year.
b. or before July 1 of the current year.
c. the annual income tax return.
d. annual or quarterly return at his or her option.
2.In the immediately preceding problem, what is the net income under OSD?
a. P1,260,000
b. P1,500,000
c. P1,540,000
d. P1,780,000
3. An individual taxpayer opted to claim optional standard deduction in his first quarter income tax
return in 2024. Total recorded sales before P150,000 sales discounts and returns were P2,350,000.
Total recorded expenses were 1,180,000 of which only P340,000 were adequately supported. The
cost of sales was P900,000.
What is the total allowable deduction for 2024 assuming the taxpayer wants to claim itemized
deduction in the annual return?
a. P340,000
b. P900,000
c. P1,240,000
d. P1,180,000
4. The claimable deduction of a taxpayer during the year consisted of the following:
5. Assuming that the taxpayer in the immediately preceding problem is a corporation, OSD is in lieu of
a. P750,000
b. P850,000
c. P1,300,000
d. P1,450,000
7. In the immediately preceding problem, compute the OSD assuming the taxpayer is a corporation.
a. P1,440,000
b. P960,000
c. P928,000
d. P880,000
8. A self-employed practitioner and part-time employee derived the following income in 2024:
10. Compute the OSD if the taxpayer is under the cash basis.
a. P408,000
b. P368,000
c. P368,000
d. P360,000
1. A private educational institution subject to a 10% preferential corporate tax reported the following in
the first quarter of 2024:
Gross tuition revenues P13,800,000
Less: Tuition discounts and remissions 400,000
Direct cost of services 6,700,000
Gross income from canteen and bookstores 600,000
3. In the immediately preceding problem, what is the OSD if the taxpayer corporation?
a. P1,040,000
b. P1,048,000
c. P2,920,000
d. P2,928,000
4. A professional practitioner has total uncollected 200,000 at the year end of 2024. Additional billings
totaling 2,500,000 were made in 2024. Uncollected billings at the year-end of 2023 were P400,000.
5. In the second quarter of 2024. Mr. Marians reported Mr. Brass income 12,000,000 after
P1,500,000 direct cost of services. If Mr. Mariano claimed itemized deduction in the first quarter, what
is the amount of claimable OSD in the second quarter if he wishes to change to the OSD?
a. P0
b. P600,000
c. P800,000
d. P1,400,000
Sales P 1,000,000
Cost of sales 600,000
Gain on sale of equipment 60,000
Interest income from bank deposits 40,000
Deductible expenses 300,000
Non-deductible expenses 200,000
8. Assuming that Mimaropa is a corporate taxpayer, compute the optional standard deduction.
a. P440,000
b. P424,000
c. P 184,000
d. P160,000