Daily Kennebec journal. [microfilm reel] (Augusta, Me.) 1870-1975, 1921-01-17
THE INCOME TAX
Facts You Should Know for
Making 1921 RepOrt

returns and heretofore have been the
subject Of numerous errors. The mis-
takes are of commission and omission.
Claim is made for loss to which the
taxpayer Is not entitled. In other re-
turns no claim is made for a deduct
ible loss which, If included, would
mean subs antial reduction in tax.
To be allowed, deductions for losses
must be confined to the following
classes: Losses sustained in trade or
business: losses sustained in transac-
tons entered into for profit, though
not connected with a trade or BUSH
ness; losses sustained of property not
connected with trade or business if
arising from fires. shipwreck. storms,
or other casualty, or from theft To
the extent any of the above losses are
compensated for by insurance they
are not deductible.
The loss must have been actually
sustained during the year for which il
is claimed in the taxpayers return. A
taxpayer may feel certain that
real estate owned by him is worth
less than the purchase price. A
merchant may be convinced that GER
tain stock can not be sold unless
marked below cost. In neither event,
however, is he entitled to a claim for
deduction until the loss is made abso-
lutte by sale or other disposition Of
the property.
MUST FOLLOW STATUTE
Claims for losses must conform
| closely to the wording of the statute.
A loss sustained in the sale of an au-
tomobiie purchased for personal use
IS not deductible. because it is not a
transaction entered into for profit"
Many claims are made for los SEES sus-
tanned in the sale of property used by
the taxpayer as a residence. Ordinari-
! ly, when a man buys a home and
moves into it. he has no intention of
selling. He does not ENTER into a
transaction for profit" and such loss
is not deductible.
owners of stocks and bonds can not
deduct from gross income amounts
claimed as losses on account of the
shrinnage in value of such securities
through fluctuations of the market or
otherwise. The foregoing applies only
to owners and investors, and not to
dealers in securities, who by special
rule are given the benefit of any
shrinkage in the securities in which
they deal.
Losses in illegal transactions-poker
playing. dice. horse racing, or other
| forms of gambling-are not dcducti-
bic although gains in such transac-
tions constitute taxable income and
must be included in the return.
| BAD DEBTS
While deductions for worthless debts
are provided for by revenue act, many
claims entered by taxpayers are not
allowed because of the nature of the
obligation. Claims for such de-
ductions must have certain, qualities.
The debt must have been charged off
within the year in which it's worthless
ness was discovered: the return must
show evidence of the manner in which
discovery was made: statement should
be made that the debtor has been dis
charged i'll bankruptcy or has disap-
peared. leaving no trace, or that the
ordinary means Of collection have been
exhausted.
Unpaid loans made to needy rela-
tives or friends with little or no ex-
pectation that they would be returned
are not deductible but are regarded
as gifts. Where the creditor con-
tinues to extent credit debt may not
be claimed as worthless. A debt may
not be charged off or deducted in part,
but. must be wholly worthless before
any part can be deducted, though it
may be clearly worth less than the
face amount. If debt is forgiven,
it can not be deducted, because it is
then regarded as a gift.
debt proved to be worthless is
not always proper deduction. For
example, unpaid amounts representing
wages, salaries. rentals, or similar
items of taxable income are not al
lowed as deductions unless included
as income in the creditors return for
the year in which the DEDUCTION is
sought or in previous year. The
fact that expected income was not re-
ceived does not reduce the taxable in
come.
Payment of an ordinary debt need
not be included in the Taxpayers re-
turn, since it is mere change in form
of capital. Where however, debt
charged off as worthless is in a later
year recovered or partially recovered
the amount recovered is taxable in
come to the creditor for the year in
which received.