The Pensacola journal. (Pensacola, Fla.) 1898-1985, 1922-02-04
INCOME TAX FACTS~


Deductions from gross income in
computing net income, upon which the
tax is assessed, are more liberal under
the revenue act OF 1921 than were pro-
vided by the revenue act OF 1918.
All the ordinary and necessary ex-
penses paid or incurred I'm carrying on
any trade. business. profession, or vo-
cation are allowable deductions. Typi-
cal expenses OF a mercantile establish
ment are amounts paid for advertising
hire Of clerks and other employees, rent
light, heat and water. telephone, insur-
ance, delivery expenses, the cost OF op-
Grating delivery wagons and motor
trucks, and incidental repairs 70 such
vehicles. The expenses Of a manufac-
turing business include labor. raw ma
terials supplies, repairs. light and heat
power. selling cost, administration and
similar charges.
A professional man-lawyer, doctor
dentist. architect. author, etc.-may
claim as deductions the cost ofrsup-
plies used by him in his practice, ex-
penses paid in the operation and repair
Of an automobile used in making pro-
fessional calls. dues to professional So
cieties, subscriptions to professional
=
fuel, light. water, mad telephone used
in such offices. and the hire Of assis-
tants.
Farmers Deductions.
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 repairs to fran buildings
(other than dwelling). fences. and ma
chinery and small tools used up in the
course of the year.
Travelling expenses, when the trip Is
solely on business, including the entire
amount spent for meals and lodging
while away from home, are deductibie.
Formerly expenses for meals and lodg-
ing were deductible only to the amount
in excess OF such expenses when at
home.
Claims for deductions for articles
more or less permanent in character
or for permanent improvements OF
property are not allowable. In the case
of business man. they Include claims
for the erection OF a new building n
the installation OF machinery. A farmt
claims as a deduction the cost OF
new threshing machine OF tractoi
SUCH deductions are expressly dlsalA
lowed by the revenue act Of 1921 and
are held to be investments OF capital 4
Deductions Of Business expenses
must have certain qualities 10 be all
lowed. They must relate to a busilMs
trade, profession, or vocation Carried 4
on by the taxpayer, in which he has
invested time or money for the purpoS
of livelihood or profit. A single trai
saction or a series of isolated transas
tions do not ordinarily constitute ira
or business. a business is being carried
on by a taxpayer even IL all Of fits ac-
tivities are carried on by employees. A
taxpayer may conduct more than one
business or trade, and claim the bust
ness expense OF each, provided he de-
votes sufficient time and attention to
each.
Salary Allowances.
The act provides for the deduction
Of reasonable allowance for salaries
or other compensation for personal
services actually rendered Such
claims TO be allowed must conform
closely to the wording of the statute
The test OF deducnbility is whether
the amounts paid are reasonable, and
whether they are. In fact, purely for
personal services. Reasonable compen-
sation is held by the Bureau OF Inter
nal Revenue to mean only such
amounts as would ordinarily be paid
for like services by like enterprises IN
like circumstances.
Bonuses TO employees may be de-
Quoted by the employer when such
payments are made ia good faith and
as additional compensation for services
actually rendered. provided that when
added to the stipulated salaries the to-
tai does not exceed "a reasonable com
pensation for such services" Such
bonuses must be included In the re
turns Of the recipient. Gifts TO EN-
ployes which do not have in them the
element OF compensation. may not be
deducted by the employer, and need
not be included in the return OF the
recipient.