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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15596
Experience:  15years with H & R Block. Divisional leader, Instructor
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I have a business in the Philippines which I have to report

Customer Question

I have a business in the Philippines which I have to report to the Philippines Bureau of Internal Revenue. I am a bona fide resident of the Philippines having dual citizenship with U.S. and Philippines. In the Philippines, my business is entitled to deduct what we called OSD (Optional Standard Deduction) in lieu of ordinary and necessary expenses. When my U.S. tax return is filed by June 15, am I allowed to report the net income calculated as gross sales/receipts less the OSD?
Submitted: 2 years ago.
Category: Tax
Expert:  Robin D. replied 2 years ago.
Hello and thanks for trusting me to help you today. I am a tax adviser with over 20 years of experience.
When you file the US return you need to start with your Gross Income (the total of all the income) then report your actual expenses.
The US would not recognize the Optional Standard Deduction for the Philippines.
You will have the Gross minus the Expenses equals Net. The Net is then your taxable amount for the US return.
Customer: replied 2 years ago.
Thank you for your respnse although you answer is very general in nature so to speak.
Expert:  Robin D. replied 2 years ago.
Glad to assist.
the general statement is specific to the OSD you asked about.
You cannot use that amount as a deduction on your US filing.
If you want to know about specific expenses for the US filing you can post which expense you are concerned about and I would be happy to advise on that specific expense.
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary. This is true even if the business is abroad.
Customer: replied 2 years ago.
Here in the Philippines, the OSD is allowed in lieu of detail business expenses. I will be satisfied if you can justify your answer in case that was previously not accepted by the IRS.
Expert:  Robin D. replied 2 years ago.
You are correct , "in the Philippines, the OSD is allowed in lieu of detail business expenses", the IRS however, requires a listing of all expenses that the taxpayer can substantiate.
The right by US law to claim business expenses is found in
U.S. Code › Title 26 › Subtitle A › Chapter 1 › Subchapter B › Part VI › § 162.
There is not a section in the code that allows for an optional standard deduction for business expenses. The section that speaks to ordinary and necessary requires that each business or industry would have specific expense that may be claimed but there is no simplified method other than to list each.