Daily Kennebec journal. [microfilm reel] (Augusta, Me.) 1870-1975, 1921-01-13
The INCOME TAX
! Facts You Should Know for
Making 1921 Report

Numerous inquiries have been re-
ceived by the Bureau of Internal Reve-
nue. concerning the items to be in
cluded under gross income" in the
1920 income tax returns. Correct I'M
Outstanding of the term is of para
mount Importance to the taxpayer as
1t is the basis upon which the return
is made.
Income is defined by the revenue act
to include gains. profits, and income
derived from salaries. wages. or per-
sonal compensation, or from profess
sions. vocations. trades. business.
commerce. or sales or dealings in prop
erty; also from interest, rents, divi-
dends. securities. or in the transaction
of any business carried on for gain or
profit, and income derived from any
source whatever" Practically every
dollar received by the taxpayer during
the year 1920 must be shown in his re-
turn as gross income. In arriving at
net income. upon which the tax is as
ses sed, the taxpayer is allowed certain
specified deductions, such as business
expenses, losses, and depreciation,
which will be fully explained later
WAGE FARMERS TAN RETURN.
Taxpayers may be divided into four
general classes-the wage Garner or
salariei class, business, professional,
and agricultural. Any form of COM
pensation for personal services rem
dered by the wage Garner is income,
including salaries, wages, commits
sions, fees and bonuses, pensions paid
retired employees. and tips. Payment
for personal services may be paid for
partly in cash and partly in board and
lodging. In this event fair value
must be placed on the room and meals,
and the amount reported as income.
Promissory notes received in pay
ment for services, and not merely as
security for such payments. consti-
tute income to the amount of their
fair market value. When services are
paid for in something other than
money, the fair market value of the
thing taken in payment is the amount
to be included as income.
If the services were rendered at a
stipulated price. in the absence of evil
dence to the contrary such price will
be presumed to be the fair value of
the compensation received. CCmpen-
sation credited to Taxpayers account
and subject to withdrawal must be re-
ported as income whether actually re-
ceived or not.
The gross income of the usual bust
ness consists of the gross profit on
sales, together with income from other
sources. The return must show the
gross sales, purchases, and cost of
goods sold To reflect net income cor
rectly and to ascertain gross income
inventories are necessary at the be-
ginning and end of each taxable year
The lawyer. doctor, architect. actor
author, dentist. clergyman, and other
professional men must include in his
return Of gross income all fees, sal
aries. and other compensation for pro-
fessional services.
RETURN BY FARMERS
The farmer is required to report as
gross income all profits derived from
the sale or exchange Of farm products
including crops and live stock whether
produced on the farm or Pun chased
and resold. Where farm produce is
exchanged for groceries, merchandise
or other articles the fair market value
Of the article must be reported as
income. farmer who rents his
farm on the crop-share basis must re-
port such income for the year in
which the crops are sold. Profit de-
rived from the sale or rental Of farm
lands must be reported.
Within the meaning of the revenue
act the term farm includes stock
dairy, POULTRY. fruit, and truck farms;
also ranches, plantations. and all land
used for farming operations. Indi-
viduals. partnerships. or corporations
that operate or manage farms for
profit, either as owners or tenants. are
designated farmers.
: Every taxpayer is required to in
clude il his return of gross income the
following items:
Interest received on notes and de-
posits in banks, including savings
banks.
Cash dividend on stock The Su-
preme Court decided in March. 1920
that stock dividends are not taxable.
Profits from the sale of such stock
however, are taxable income for the
year in which received. Only d;vi-
dends paid out of earnings or profits
accrued since March l. 1913, arc taxed.
Profits received from the sale OF
property, real or personal. If the
property was purchased prior to March
1, 1912, the profit is based on the diff
ference between the selling price and