Arizona republican., 1922-02-04
Income Tax Facts
You Should Know
Series of Fifteen Articles Prepared
by the Bureau of Internal
ReWsnue OF informative
Value TO Millions.
No. 5


Deductions from gross income in
computing net income, upon whicn
the tax is assessed, are more liberal
under the revenue act Of 1921 than
We're provided by the revenue act
of 1918.
All the ordinary and necessary eX-
penses paid or incurred in carrying
on any trade, business profession,
or vocation are allowable deductions.
Typical expenses Of a mercantile
establishment are amounts paid for
advertising, hire of clerks and other
employees. rent. light, heat and water,
telephone, insurance, delivery wagons
and motor trucks and incidental re-
pairs to such vehicles. The expenses
Of a manufacturing business include
labor, raw materials, supplies, re-
pairs, light and heat, power, selling
cost, administration and similar
charges.
A professional man-laWyer, doc
tor, dentist, architect, author, ETC.
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 MAX
ing professional calls. dues to pro-
fessional societies. subscriptions to
professional journals, office rent. the
expense Of fuel, light, water and tele-
phone used in such offices, and the
hire of assistants.
Farmers Reductions
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 farm
buildings (other than the dwelling),
fences and machinery 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
deductible. Formerly expenses for
meals and lodging were deductiole
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 a busine IS man. they include
claims for the erection of a new
building or the installation Of ma
chinery. A farmer claims as a de-
duction the cost of new threshing
machine on tractor. Such deductions
are expressly disallowed by the reve-
rue act of 1921 and are held 10 he
invest ments of capital.
Deductions for business expenses
must have certain qualities to be
allowed. Tkey must relate to busi-
ness, trade, profession, Or vocation
carried on by the taxpayer, in
which he has invested time or money
for the purpose of livelihood or
rlofit A single ira nsaction or a
series Of isolatei transactions do not
ordinarily constitute trade or busi-
ness. A business is being carried on
by a taxpayer even il all of its
activities are conducted by employees.
A taxpayer may conduct more than
one business or trade, and claim the
business expense of each, provided
he devotes sufficient time and atten-
tion 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 deductibility is whether
the amounts paid are reasonable, and
whether they are, in fact purely for
personal services. Reasonable COM
pensation is held by the bureau OF
internal revenue to mean only sucn
amounts as would ordinarily be paid
for like services by like enterprises
in like circumstances.
Bonuses to employees may be de-