May sobrang resibo ka ba dyan? Has anyone heard of that? How about a friend who volunteers to get the bill and calculate everyone’s share, because your friend needs that receipt? This is especially true for home-based professionals and solopreneurs who apparently don’t have enough expenses/receipts to claim as tax deduction. Well, we don’t need to be a CPA to know what the BIR thinks about that.
But are expenses that low, that one has to resort to scrambling for receipts? Or maybe home-based businesses have been ignoring what I call the “what-if” expenses for tax deductions?
What-if expenses refer to those you have to separately pay for, assuming there’s a workplace away from home. If you do, think about the rent, utilities, internet, pantry & office supplies, separate computer, etc. Yes you “save” via luxury of working from home, but are you not already paying for these? If you’re not working from home, maybe a slower/cheaper broadband plan is good enough? How about the family printer that without it, you’d have to buy one yourself? Or is it possible you could settle for a smaller house (cheaper rent) if you don’t need the office room? All these extra costs are business expenses, too.
So how do we report these what-if expenses as tax deductions. There are two. First is to identify and calculate your what-if costs. For example, triathlon coach JCruz’s (Juan de la Cruz) family moved to a more expensive place near BGC, for him to be closer with potential clients. The “difference” as supposed to staying elsewhere is sort of JCruz’s office rent won’t you agree? There’s one business expense right there! The second step is to provide valid documentation. So the easiest way here is make sure the lease agreement (and monthly receipts) is under his name (but of course claim only the “difference” as tax deductions, NOT the entire rent).
But Step Two is not that simple as it can be a hassle to have to track and account for all expenses. Good news is there’s an easier alternative, the Optional Standard Deduction (OSD), which we’ll cover in our next blog.
Stay tuned !