The Democratic advocate. [volume] (Westminster, Md.) 1865-1972, 1914-04-10
HOW FARMERS SHOULD COMPUTE
THEIR INCOMES.
Incomes Under $1,000 Not Affected by
Income Tax-MethOd of Computing
Net Income Explained,

washington, > ~, March Oil
farmer is 80 fortunate as to. have a
net income of over $4,000 a year i'm
case he is bachelor, or $4,000 if
married, he is subject to the income
tax. and under the law each individ-
ual must make return to the Internal
Revenue collector Of his district on
or before the first day III March IL he
has a net income of $4,000 or over
$500 for the ten months Of 1919.
While the interest OF most farmers id
this subject is purely academic, the
Department of Agriculture has re-
ceived inquiries indicating that some
wish to know just what il required OF
them under the new law.
The income tax law OF October 8,
1918, places a tax of 1 per cent upon
all incomes of over $4,000, with an
additional tax on incomes Of $4,000
or more. The first question arising
in the minds of most people il what
constitutes net income. For a man
receiving regular salary, or a bust
ness man with a good system of
bookkeeping, it is easy to determine
whether or not his income Is taxable.
But for the farmer who receives no
stated income, and who often fails to
keep accurate account OF receipts and
expenditures, it is more difficult to
calculate his net income.
In order that farmers may be post
ed on the income tax as it may con
Germ them, the following information
has been furnished by the Internal
Revenue BUREAU OF the Treasury
Department:
In general, an income consists of
amounts derived from salaries, wages.
or compensation for personal service,
paid in any form; also from profess
sions, business, sales or dealings in
property, or from rents, interest on
bonds or mortgages, dividends on
stocks, or other income from invest
ments. These items constitute gross
income, from which there should be
deducted the expenses Of carrying on
the business, interest paid on in
debtedness, worthless debts charged
off, losses by fire, storm or ship
wreck, not covered by insurance; eX-
haustion, wear and tear of property.
and any income upon which the in
come tax has already been deducted
at the source, as, for instance, divi-
dends on the stock of a corporation
which has already paid the tax on Its
earnings.
The provisions regarding net in
comes OF $4,000 apply only to unmar-
ried persons, or to married persons
not living with wife or husband. A
husband and wife living together are
entitled to an exemption of $4,000 on
their aggregate income, if this added
to the husbands income amounts to
$4,000 the total il subject to the tax;
or, if the wife has not separate in
come, the husbands income Is tax
able only in case 1T reaches $4,000
But return must be made if the ag-
gregate income Of both is $4,000 for
the year 1913. The joint exemption
however, would be $3,333.33.
In arriving at his net income the
farmer should start with his gross
income This would consist of any
items Of the kind above enumerated
and especially all receipts from the
sale of products of every description
from the farm. This would include
all money received from produce and
animals sold, and for the wool and
hides of animals slaughtered, if the
wool and hides are sold; but he may
deduct from these items the amwunts
actually paid as purchase money for
the animals sold or slaughtered dur
ing the year. When the animals rails
ed by the owner are sold or slaugh-
tered, however, their value should not
be deducted.
From the gross income there should
be deducted amounts Of money act
ually paid as expenses for operating
the farm and producing the farm pro-
ducts, live stock, etc. This would
include hired farm labor, farm sup
plies purchased that are necessary to
carry on the business and not an IN
vestment that represents principal
etc. Expenses for repairs on farm
property may be deducted, provided
the amount deducted does not exceed
the amount spent for such repairs
during the year for which the return
is made The cost Of replacing tools
or machinery may also be deducted
to the extent that the cost OF the new
articles does not exceed the value Of
the old. No deduction may be made
for the additional cost OF farm ma
chinery For example, If machine
cost 500 and IL regarded as good Tor
ten years of service, the annual de-
probation would be 10 per cent, and
a deduction OF $40 each year could
be made on this account, az part OF
the expense of operating the farm.
The expense of supporting the fam
ily, however, can not be deducted
from the gross income. Among items
for which credit is not allowed are
expense for medical attendance. life
insurance, insurance on dwelling,
store accounts, family supplies, wages
or domestic servants, and cost OF
board, room or house rent, for family
or personal use. In case an indlvld-
uaI owns his residence he cannot de-
duct the estimated value of his rent.
But a tenant operating a rented farm
as proprietor may deduct the rent OF
the farm as part of the expense or
his business.
Farmers are not required to in
clude Ia their income the produce
taken from the farm and consumed
by the family. Only produce sold or
the farm II to be included. "a farm
er il not entitled to a deduction for
his own labor, or for expense Of feed
ing live stock. He may, however,
deduct such items az cost of fertil-
izer and other supplies and materials
which are used up in the course OF
his operations.
The law provides that for The year
1913 the tax shall be computed only
on the net income for the ten months
from March 1st to December 3lst, and
that returns shall be made on the