Montgomery County sentinel. [volume] (Rockville, Md.) 1855-1974, 1918-02-15
How To Figure Your Farm Income
Tax.

1877, might well be called IAN Act to En-
force the Keeping of Farm Accounts" for
this is practically what it amounts to in
the last analysis. All of the agitation for
better farm accounting has been mere
pittance by the side of the stimulus which
this new law gives to the adoption Of bet
ter business methods by farmers.
The general facts concerning the law
are pretty well understood and are fully
stated on the income-tax return blank.
The blank is clear enough on most points
except that it simply calls for totals. and
gives very little help in deciding what
should make up these totals. On Form
l040A. page 8, the second block, B. en-
titled Income From Business. Farm or
Profession, is the place where the trouble
some items will develop, The first space
provides for Total Cash Received" which
must include all income from the farm,
sale of farm products. and so forth.
Immediately following 1t is the item
Less Expenses Paid and Losses" which
is subdivided under seven heads Labor, :"
Materials, ""Rent." Merchandise or Live
stock Bought for Sale" Wear, Tear and
Repairs" Losses" and "0ther Expenses. p"
At the first glance it would appear that
complete cash account would be all that
would be needed to fill out this report, but,
as with every other law. there are almost
as many exceptions as rules.
First summarize all income from the
sale of crops. animals, animal products and
everything produced upon the farm.
Separate all items for the sale of land.
buildings, tools and equipment or other
personal property.
Remember that this 10 for the year be-
ginning with January 1. 1917, and ending
December 81. 1917. Crops or livestock that
are raised are not income until sold. con-
sequently il you carry over your wheat or
your steers, they are not counted in this
tax until next year.
In the same way. products carried from
1915 and sold in 1917 are taxable this year.
Anything that is reduced to money or
money equivalent counts as income Rent
for land, crop-share rents. interest on bank
deposits, interest on MORTGAGES and notes
held. dividends on stocks in creameries.
elevator or telephone companies, and so
forth.
The value Of groceries secured by trad
ing produce for them should also be ac-
counted for. since this is in fact sale Of
produce.
Wood produced on the farm and used
for fuel is also an income that should be
entered.
Separate all salaries and compensations
paid by the State, county or township, as
these are exempt. For instance, the fees
and salaries Of the local supervisors or
school directors do not have to be counted
in the tax report.
You have now a fair summary Of total
cash received which is divided to be en-
tered into the two blocks, "B" and &C." on
page 8 of Form 1040A.
A farmer who has kept complete set
of books with inventories made January I.
1917, and January 1. 1918. which accounts
have been summarized to show the total
income accrued, may enter this amount as
Total Cash Received" provided personal
and household incomes have been separated
from these accounts. Also. If you have
merely kept inventories made at the be-
ginning and end Of 1917 the increase in
the amount of the inventory may be added
to the Total Cash Received" in the report.
Next comes the summary of Expenses
Paid and Losses"
Labor" is an expense only when 1t Is
hired labor, employed on the farm, that
has been actually paid for in cash or its
equivalent. Household servants wages
cannot be deducted. since they are items
Of personal expense.
The farmer cannot charge for his own
labor, and may enter an item for the labor
Of sons and daughters only where they are
actually paid in cash-if the sons and
daughters are minors. II this is done
merely to avoid the tax, there is severe
penalty. II minor sons or daughters have
an income. it must be added to that Of the
head of the family. IL is not wise for any
farmer to try to pay off his sons and daught-
ers with lump a',m at the end of the year
in the form Of Christmas present. The
Government inspector who will come round
later may ask some embarrassing questions.
A farmer may deduct the value Of pro-
duce furnished to hired man as a part
of his compensation.
Materials and Supplies" cover the actual
money paid out for things that are used in
the business. such as seeds. feeds. fertil-
izers. spray materials. salt. veterinary fees,
gasoline and oil used in operating farm
machinery, and so forth-things that are
actually used in operating the farm.
The cost of new buildings, new machin-
cry, silos. fences. drains. wells. farm tools.
and so forth, that last more than one year
and. therefore, add to the capital invest
ment" Of the farm, cannot be deducted.
In fact. anything that makes the farm
better than 1t was must be distinguished
from repairs that merely make it as good
as 1t was. For instance. barn roof may
be patched and the cost deducted as an
expense. while the cost Of an entire new
roof cannot be deducted, as it is a perma-
nent betterment
The first cost of an automobile cannot
be deducted as an expense II used only
for pleasure the repairs and upkeep are
personal expense that cannot be deducted.
II the car is used entirely about the farm
the gasoline, oil and repairs may be added
to the farm expenses.
Rent" covers all items Of the cost Of
renting land, buildings or other property
for use in the farm business, but does not
include rent paid for dwellings for hired