Norwich bulletin., 1921-01-18
INCOME TAX FACTS
 YOU SHOULD KNOW

Claims for deduction for lesses form an important item in income tax returns and heretofore have been the subject of numerous errors. The mistakes are of commission and omission. Claim Is made for loss to which the taxpayer is not entitled. In other returns no claim is made for dsductible loss which, if in- cluded, would mean substantial reduc- ton in tax.
 To be allowed, deductions for losses must be confined to the tollowin4 classes: Losses sustained in trade or bus ness; losses sustained in transactions en- tered into for profit though not connect ed with trade or business; losses s1s- tained 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 in- surSncc they are not deductible. The loss must have been actually sus- tained during the year for which 1t Is clatned in the taxpayers return A tax payer may feel certain that real estat. owned by him is worth less than the pur- chase price. A merchant may be con- vinced that certain stock can not be sold unless marked below cost In neither l event, however. is he entitled to a claim l for deduction until the loss Is made ab- i solutely 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 automobile purchased for personal use is not de- ductiole, because 1t is not a transactics entered into for profit" Many claini are made for losses sustained in the sal, of property used by the taxpayer as 4 residence Ordinarily, when d man buy, home and moves into 1t, he has no in. tention of selling. He does not "ente, into a transaction for profit,' and such | loss is not deductible.
 Owners of stocks and bonds cannot de duct from gross income amounts elaine, as losses on account of the shrinkake ii value of such securities through fuctua
 tions of the market or otherwise. Tn
 foregoing applies only to owners and ir
 vestors. and not to dealers in securities
 who by special rule are given tho bene
 Tt of any shrinkage in the Securities i
 which they deal.
 Losses in illegal transaction-neke
 playng, dice, horse racing, or other farm
 of gambling-are not deductible althemr
 gains in such transactions constitute ta, . able income and must be included in th
 return. " '''
 Bad Debts.
 While deductions for worthLesa dehi | are provided for by revenue act, man
 claims entered by taxpayers are not s 2 lowed because of the nature of the obl g gation. Claims for such deductions snu
 nave certain qualities The debt Ynu f nave been charged off within the year = which its worthFessness was discoveret 1 l the return must show evidence of il
 manner in which discovery was mad, r statement should be made that the deb
 or has been discharged in bankruptcy n has disappeared, leaving no trace, or tn 7 the ordinary means of collection ha,
 been exhausted.
 t Unpaid loans made to needy relativ r or friends with little or no expectati,
 that they would be returned are net q r ductihle. but are regarded as gifts. whs
 the creditor continues to extend credit r deot may not be charged off or deduct e in part, but must be wholly worthle
 before any part can be deducted. then, t t may be clearly worth less than tl d faoe amount. If debt is forgiven, it e,
 not be deducted, because it is then ' q garded as gift.
 [: A debt proved to be worthless ia r e always proper deduction. For exanap n unpaid amounts representing wages, ., IS aries, rentals, or similar items of tax d ble income are not allowed as deductio y unless included as inucome in the ore, e. tors return for the year in which the s E. duction is sought or ir> previous ye, ,t The fact Chat expected income was n