The daily banner. (Cambridge, Md.) 1897-2008, 1922-02-20
Hints For Corporations
Filing Income Tax Returns
For The Year 1921

Form 1920 for reporting net in
come of corporation for the year
1921, now are available at the offices
of collectors of internal revenue and
deputy collectors.
The federal tax on income CT cor
porations is divided into two parts,
income tax and excess profit tax.
The income tax on corporations for
1921 is at the rate of 10 per cent OF
the net income subject to tax. For
1922 and subsequent years, as pro-
yided by the revenue act of 1921, the
income tax is II 4 e per cent.
In ascertaining net income subject
to the income (normaD tax the cor
poration is allowed certain specific
credits. which include CD the
amount of war and excess profit tax
imposed by the United States for the
same taxable year, and CD interest
received upon obligations of the
United States and bonds of the war
finance corporation which has been
included in gros sincome. a specl-
fic credit of $4,000 is also allowed
corporations whose net income for
1921 was $4,000. or less. Under
the revenue act of 1918. this eXemp-
ton was allowed all corporations re
CARELESS of the amount of net income.
The act provides that if the net in
come in more than $25, 900, the nor
NAL tax shall not exceed the tax
which would be payable if the $4,000
credit was allowed, plus the amount
of the net income in excess OF SZ5,-
600. =,
The excess profit tax is computed
on the basis Of the relation OF net IN
come to the invested capital of the
corporation, as defined by Section
326 of the revenue act Of 1921. Thls
tax is in addition to the normal IN
come tax Of 10 CO. 1t is based on the
net income above specific eAemp-
ton of $4,000 and sc of the invest
ed capital for the taxable year, these
amounts being known as excess pro-
fits credits. The rates are the same
as for 1920, 20 per cent of the net
income in excess Of the excess pro-
fits credits and not in excess of 2OHt
and the invested capital Of the taxa
Bile year (known as first bracket)
and 400 per cent of the net income
in excess of. 2OIo of the invested
capital (S6cOuu III C-ChClJ' 1lA' NSISN
capital for the taxable year is the
capital actually paid in for stock out
standing including the paid-in sur
plus and earned surplus or profits
earned prior to the taxable year,
which have not been distributed. The
term Invested capital. does not in
clude borrowed capital.
Invested capital embraces two
classes Of assets; those known as
admissible assets" and those known
as ''inadmissible assets" Admissl-
Bile assets are those which produce
income that in subject to income tax
Inadmissible assets are those (othef
than obligations of the United
States) which produce income that is
exempt from income taxation. Fol
example, cash, real estate, bills re-
ceivable and other tangible assets,
which produce income that is sub
ject to the income tax are admissi-
BILE assets. Assets. Assets such as
stocks and state or municipal bonds
which produce income that is exempt
from income tax are inadmissible as
sets.
The revenue act of 1921 requires
that all corporations having inadmls-
sible assets must deduct from invest
ed capital "a percentage there OF
equal to the percentage which the
amount Of inadmissible assets is of
the total amount of admissible and
inadmissible assets held during the
taxable year."For example, the total
assets of a corporation for 1921 was
100000 of which $4,000 was in
inadmissible assets and $50 600 inI
admissible assets. The average in
vested capital was $4,000 in adj
Missile assets. The average invest
ed capital was $4,000. Applying
the above rule, the invested capital
must be reduced by rs per cent (the
percentage of the inadmissible assets,
$15O,O0O to the total assets $780,
OOO) The reduced invested capital
therefore, will be 100000 (the in
vested capitaD less 100000 $3.50
ported on a cash receipt and dis
bursements basis, accrued items can
not be taken into consideration in
Where a corporations income is re-
of the invested capitaD or 100000.
computing it's invested capital.
The payment CT a stock dividend
has no effect upon the amount of in
vested capital. The capitalization
of current earnings does not increase
the invested capital. Appreciation
in good will and tangible property
determined by an appraisal against
which q stock dividend was issued
cannot be allowed as invested
capital The value of tangible prop
erty paid in for stock or shares in an
amount as limited by Section 1926 oil
the revenue act of 1921 may be in
Guided in invested capital.
The revenue act of 1921 provides
that every corporation, joint stock
company, association and insurance
company not specifically exempt shall
file return. |