The Barre daily times. (Barre, Vt.) 1897-1959, 1921-01-29
FIGURING LOSSES
FOR INCOME TAX
Claims for Deduction Form Impor
tant Item in the Re-
turns.

tant Item in the Re
turns.
Claims for deduction for losses form
an important item in income tax re-
turns and heretofore have been the
subject of numerous errors. The mis-.
takes are of commission and omis-
sion Claim is made for a loss to which
the taxpayer is not entitled. In other
returns no claim is made for a deducti
bic loss which, II included, would mean
substantial 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.
tions entered into for profit, though not
connected with trade or business
losses sustained of property not con
nected with trade or business if aris-
ing from fires, shipwreck. storms or
other casualty, or from theft To the
extent any Of the above losses are com
pensated for by insurance they are not
deductibe.
The loss must have been actually
sustained during the year for which II
is claimed in the taxpayers return. A
taxpayer may feel certain that real es
tate owned by him is worth less than
the purchase price. A merchant may be
convinced that certain stock cannot be
sold unless marked below cost. In Ell
Their event, however, is he entitled to a
claim for deduction until the loss is |
made absolute by sale or other DISPOSE
ton Of the property.
Must Follow Statute.
Claims for losses must conform close.
ly 10 the wording OF the statute. A loss
sustained in the sale Of an automobile
purchased for personal use Is not de-
ductible, because IL is not a transac-
ton entered into for profit" Many
claims are made for losses sustained in
the sale of property used by the tax
payer as a residence. Ordinarily, when
a man buys a home and moves into il,
he has no intention of selling. He does
not "enter into transaction for prof
it, and such loss is not deductibie.
Owners Of stocks and bonds cannot
deduct from gross income amounts
claimed as losses on account Of the
shrinkage 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 a special
rule are given the benefit Of any
in the securities in which
they deal L
Losses in illegal transactions poker !
playing, dice, horse racing or other !
forms of gambling are not deductible,
gains in such transactions
income and must be includ-
ID in the return.
Bad Debts.
While deductions for worthless debts
ire provided for by revenue act, many
'laims entered by taxpayers are not
allowed because of the nature Of the {
Claims for such deductions {
must have certain qualities. The debt {
must have been charged of within the d
rear ia which It's worthlessness was I
liscovered the return must how evi- c
Ience of the manner in which discov-
~ was ISade statement should be C
made that the debtor has been dis 2
harged in bankruptcy or has disap- t
cared, leaving no trace, or that the b
rdinary means of collection have been a
Unpaid loans made TO needy rela :
ives with little OF no expectation that
hey would be returned are not de-
uctible, but are regarded as gifts.
Where the creditor cont inues TO extend
redit a debt may not be claimed as
rorthless. A debt may not be charged
II or deducted in part, but must be
holly worthless before any part can
E deducted, though il may be clearly
'Orth less than the face amount. If
ebt is forgiven, il cannot be deducted,
ecause il is then regarded as a gift.
When Proved Worthless.
A debt proved to be worthless i not |
ways a proper deduction. For exam
le, unpaid amounts representing |
ages. salaries, rentals or similar items
taxable income are not allowed a. |
eductiOns unless included as income in
he creditors return for the year in /
hich the deduction is sought or in a l
reviOus year. The fact that expected /
lcome was not received does not re-
uce the taxable income
Payment Of an ordinary debt need
d be included in the taxpayer re- /
arm, since < Is a mere change in form
capital Where. however, q debt
lsrged Of a. worthless j. in a later
Far recovered o. partially recovered
V amount recovered j. taxable m
me TO the creditor for the yesr in
hich received
u II Burke,