The Washington herald., 1920-03-02
Income Tax Facts
You Should Know

Before claiming as a deduction in
the preparation of an income-tax re-
turn all the ordinary and necessary
expenses paid or incurred during
the taxable year in carrying on any
trade or business" it must be de-
Itermined just what constitutes a
trade or business.
Trade or business" has been held
to include professions and voca-
tions. The trade or business of an
| Individual is the pursuit of an oc-
cupation to which he devotes wholly
or in part his time and attention for
the purpose of livelihood or proht.
| A single transaction or a series OF
isolated transactions is not regarded
as a business.
A person may carry on more than
one business or trade IL he devotes
sufficient time and attention to each
enterprise. and may claim as de-
ductions the business expenses OF
each. Mere investment of capital
for profit, however, is not sufficient
to allow such claim. For example.
merchant investing in oil stocks
who desires to visit the scene of op-
erations may not include the cost
| of the journey as a business eX-
pense.
Allowable Items.
From his gross sales. a manufac-
turer or merchant should deduct the
cost of goods sold during the year.
the result being his gross income
for the year. In this computation
he should take into consideration
the inventories of the goods on hand
at the beginning and end of the
taxable year.
From his gross income he is al
lowed to deduct as business ex-
penses such items as salaries and
wages, rent paid for use of business
property in which taxpayer has no
equity, interest on business and
business property. minor repairs,
reasonable allowance for wear and
tear of property used in business.
and losses Of business property by
fire, storm, or other casualty, or by
theft, when not compensated for by
insurance or otherwise. Bad ac-
counts actually charged off because
they were ascertained during the
year to be worthless may also be
claimed as q deduction.
The smaller Incidental excuses,
such as advertising, freight, ex-
press, postage, stationery. telephone,
ETC., are also deductible items.
| However, deductions for business
expenses may not include invest
ments of a permanent nature such
as expenditures for the erections of
new buildings. installation of ma
chinery. and the purchase of tools
or implements of permanent value,
since they constitute merely q
change in form of capital. and not
la reduction of wealth.
Salary Payments,
The law provides. for the deduc-
tion of a reasonable allowance" for
salaries or other compensation for
personal services actually rendered.
Such payments are subject to care
full scrutiny by the Bureau OF In
Iternal Revenue, and, to be allowed,
must conform strictly with the
wording Of the statute. A payment
is not q salary if~in fact 1t is paid
for some consideration other, than
personal service. For example,
should stockholders Of q corpora
tion draw salaries in amounts
which bear close relationship to
their stock holdings and 10 such
payments are found to be in excess
of q reasonable allowance for serv-
ices rendered, the excess will be
regarded as q dividend under the
guise of salary.
Reasonable compensation is held
by the bureau to mean only such
amount as would ordinarily be paid
for like services by like enterprises
In like circumstances, as for In
stance, bargain between stran-
IKerS- $50 4. = :. ,.s...e5z :.