The Washington times., 1920-02-11
Hints For Corporations
In Filling Up Income Tax
Forms, Due on March IS

increase in value not realized is not
taxable income.
The deductions allowed from gross
income in determining the net income
su ject 10 tax are all the ordinary ana
necessary expenses OF the business.
including losses actually sustained
and not compensated for by insur-
ance, also all interest and taxes paid
or accrued except Federal income ana
excess profits taxes.
The amount which may be deducted
on account OF depreciation or nxed
assets Is the amount OF loss due 10
wear and tear within the taxspie
year only. The amount Is based on
the cost pro-rated over the life OF
the property after acquisition or upon
the fair market value at March j.
1918, IL acquired prior, thereto.
In general corporations cannot de-
duct gifts to employees OF others, or
contributions to charitable organi-
cations. Special payments to en-
pIoyes in the form of bonuses, when
paid as compensation for services ac-
tually rendered. are deductible as ex-
pensc when reasonable in amount.
Federal income and excess pronts
taxes paid, the cost OF office furni-
ture and fixtures, additions TO build
sessment taxes for local benefits are
not dSductible from gross income In
ascertaining the net taxable income.
Excess Proats Tax.
The excess profits tax is computed
on the basis OF the relation OF net in
come to the invested capital OF the
corporation. In ascertaining the in
vested capital for the year there
should be added TO the total capital
stock outstanding and fully paid at
the beginning of the year. the paid-in
and earned surplus and undivided
profits at the beginning OF the year
as shown by the books. This total
may be increased by amounts deduct.
ed in prior years for depreciation In
excess of the amounts allowed by the
Internal Revenue Bureau, by amounts
reserved for bad debts and other con-
tingent reserves not allowed as de-
ductions and by amounts represent
ing the excess OF the cash value OF
assets acquired by the corporation
over the cash paid or par value OF the
shares issued therefor representing
paid-in surplus not recorded on books
Of account.
A further adjustment as a reduc-
ton OF invested capital must be made
for depreciation and depletion not
charged off, appreciation in value OF
assets in excess~oS cost, and for the
value of good will and other intan-
gible property as required by law. A
reduction is also required on account
of inadmissible assets which are, in
general, those assets the income from
which is not subject to the tax.
Invested capital at the beginning
of the year is also adjusted by the
amount OF dividends paid during the
year in excess of current earnings,
Federal income and excess prohts
taxes payable and any additions to
capital paid in during. the year in
cash or property; dividends payable
within the first sixty days of the tax
able year are considered as comir g
out of the prior years surplus.
In computing the excess profits tax
there is allowed as a credit against
the net taxable income an exemption
Of $4,000, 900 plus 8 per cent of the in
vested capital ascertained as above.
The balance Of net income is taxable
in two sections or brackets at 20 pei
cent and 40 per cent, reduction from
the rates for 1918. which were 80
per cent and 65 per cent.
The Total Tax.
The total tax payable is the sum
of the income tax and the excess
profits tax.
The accompanying tables will be of
assistance to corporations in ascer-
tanning the amount of tax due the
government before closing their
books for 1919 and distributing their
earnings to stockholders in dividends.
These tables will not apply to cor
porations having a net income Of
more than SlO,0OO,OO0 from any gov
ernment contract or contracts made
between April 6, 1917, and November
IL, 1918, inclusive.