The three options in plain words
- 8% option: simple. Tax is 8% of gross above ₱250,000. Expenses don’t matter.
- Graduated + OSD: BIR assumes 40% of your gross is expenses, no receipts needed. You pay graduated tax on the other 60% plus 3% percentage tax.
- Graduated + itemized: you deduct your real expenses, backed by receipts and books, and also pay 3% percentage tax.
₱1,500,000 gross receipts at different expense levels
| Actual expenses | 8% option | OSD + 3% | Itemized + 3% | Best |
|---|---|---|---|---|
| ₱0 | ₱100,000.00 | ₱172,500.00 | ₱322,500.00 | 8% on gross |
| ₱200,000 | ₱100,000.00 | ₱172,500.00 | ₱272,500.00 | 8% on gross |
| ₱400,000 | ₱100,000.00 | ₱172,500.00 | ₱222,500.00 | 8% on gross |
| ₱500,000 | ₱100,000.00 | ₱172,500.00 | ₱197,500.00 | 8% on gross |
| ₱600,000 | ₱100,000.00 | ₱172,500.00 | ₱172,500.00 | 8% on gross |
| ₱800,000 | ₱100,000.00 | ₱172,500.00 | ₱127,500.00 | 8% on gross |
With ₱600,000 of expenses (40% of sales), itemized and OSD give the same taxable income. In this example the totals are 8%: ₱100,000.00, OSD: ₱172,500.00, itemized: ₱172,500.00.
What the table tells us
- When expenses are small, 8% wins easily.
- Itemized only beats 8% when expenses are a big share of sales — typical for resellers who buy stock.
- Itemized needs official receipts for every expense and proper books, so count the bookkeeping cost too.
Timing matters
You choose your option once a year: the 8% option is elected when you register or in your first quarterly return of the year, and OSD is chosen in the first quarterly income tax return. If you don’t elect 8%, BIR treats you as using graduated rates. Write your choice down and keep it the whole year.
A simple way to decide
- Estimate your gross sales for the year.
- Add up the expenses you can prove with official receipts.
- Put both numbers in the calculator and compare the three totals.
- If the difference is small, choose the simpler option — usually 8% — because it means fewer returns and less bookkeeping.
Remember that OSD is computed on gross sales for individuals, so it is generous if your real costs are below 40%. Itemized deductions only pay off when your documented costs are clearly higher.
FAQ
When is itemized better than the 8% option?
Only when your real deductible expenses are a large share of your sales, enough to offset the 3% percentage tax — the table shows the break-even for a ₱1.5M business.
How much is the tax on ₱1.5 million under 8%?
₱100,000.00 for a purely self-employed taxpayer: 8% × (₱1,500,000 − ₱250,000).
Can I switch options in the middle of the year?
No. Your election applies to the whole taxable year; you can choose differently next year.
Sources (checked 5 November 2026): NIRC Sec. 24(A)(2) as amended by RA 10963 (TRAIN) — graduated income tax table effective 1 January 2023 and the 8% option on gross sales/receipts above ₱250,000 for taxpayers with gross receipts not over ₱3,000,000; Sec. 34(L) optional standard deduction of 40% of gross sales/receipts; Sec. 116 percentage tax of 3% (the 1% CREATE rate ended 30 June 2023); Revenue Regulations No. 8-2018 (election of the 8% option, mixed income earners); bir.gov.ph. No change to these rates had been announced for 2027.