The Washington herald., 1921-01-15
Income Tax
Facts You
Should Know
CHAPTER v

Many errors in the deductions al
lowed taxpayers are found in the
income tax. returns. DeductIbIe
items are omitted and other items
which are not deductible. are in
cluded. Deductions for business ex-
penses are the principal deductions
allowed. the law expressly prohibit
ing deductions for personal, living.
or family expenses.
The revenue act provides that in
computing net income there shall be
allowed as deductions from gross
income all the ordinary and neces-
sary expenses paid or incurred in
the taxable year in carrying on any
trade, business, profession. or voca-
ton. Typical expenses Of a mer-
camille establishment are amounts
paid for advertising, hire Of clerks
and other employees, rent, light,
heat and water, telephone, insur-
ance' delivery expenses, the cost OF
operating delivery wagons and mo-
tor trucks, and incidental repairs to
such vehicles. The expenses. Tof
" OhslHESs lnCluQG
labor, raw materials, supplies, re-
pairs. light and heat, power, selling
charges.
Professional Men.
A professional man may claim as
deductions the cost OF supplies used
by him in his practice, expenses paid
in the operation and repair of an
automobile used in making profess
sional calls, dues to professional
societies and subscriptions to pro-
fessional journals, office rent, the
expense of fuel, light. water and
telephone used in such offices, and
the hire of assistants.
A travelling man, working on sal
ary or commission. is allowed to
deduct certain business expenses
Reasonable and necessary travelling
expenses include railroad fares ana
meals and lodging. A travelling
man working on salary without re-
endorsement for travelling expenses
or employed on a commission basis
with no expense allowance, NAV de-
Duct his expenses for railroad fare.
and also his expenses for meals and
Iodglng in an amount in excess Of
the ordinary cost, for such living
expense when at home.
Extra Compensation.
II he receives a salary and is re-
pdlu his actual travelling expenses.
ne must include as gross income an
amount equal to the ordinary ex-
pense Tor meals and lodging when a
nome, as such amount is held 70
be additional compensation to the
taxpayer. Payment for the use of
a sample room for the dispIav n
goods is a business expense.
The farmer may deduct all
amounts paid in the production.
harvesting and marketing of crops.
including labor, cost of seed and
FERTILIZER used, cost of minor re-
pairs to farm buildings Cother than
the dWelling), fences and machfn-
cry, and of small tools which are
used up In the course OF the year
Erroneous Claims.
Taxpayers frequently make the
mistake of claiming as deductions
expenditures for articles more or
less permanent in character or for
permanent improvement Of their
property. In the case of the busr-
the erection of new buildings or
installation of machinery. A farmer
claims as a deduction the cost of a
new thrashing machine or tractor,
or the expense OF putting a new
roof on his barn. Such deductions
are expressly disallowed by the
revenue act, and are held to be in
vestments OF capital.
Allowances for Losses.
Allowable deductions. in addition
to business expenses, include losses
sustained by the taxpayer in any
transaction entered into for profit
outside of his regular business.
A reasonable allowance is made
for depreciation Of business prop
erty, including obsolescence. and for
the depletion of oil and gas and
other natural deposits.
Contributions made during the
year 1920 to corporations organized
exclusively for charitable, scientific,
religious, or educational purposes,
or for the prevention of cruelty to
children or animals, or the special
fund for vocational rehabilitation,
may be deducted to an amount not
exceeding Is per cent of the taA-
payers income, computed without
the benefit of this deduction.
Other Items.
Other items which may be de-
Quoted are as follows:
Taxes paid or accrued during the
year 1920, except income, war prof
its, or excess profits taxes, and
those assessed against local bene-
fits of a Kind tending to improve
the value of the taxpayers prop
erty.
Losses of property not connected
with trade or business arising from
fires, or other casualty, or from
theft, If not compensated for by in
surance.
Debts ascertained to be worthless
and charged off within the year
1920.
Interest paid or accrued on in
debtedness, except interest incurred
to purchase securities (other than
securities of the United States
issued subsequent to September "a,
1e17), the interest on which is eX-
empt from tax.