Milford chronicle., 1924-06-27
FEDERAL INCOME
TAX LAW CHANGES
ARE EXPLAINED
Continued from first page)


persons and heads of families was
S2,500 if the net income was $4,000
or less and $4,000 if the net income
exceeded $4,000. No change is made
in the provision allowing a taxpay-
er, in addition to his personal exemp-
ton, a credit of S400 for each depen-
: dent if such dependent is under Is
years of age or incapable of self
support because mentally or physi-
cally defective. This S400 credit is
not allowed for the husband or wife
of a taxpayer, though one may be
totally dependent upon the other.
Formerly, a taxpayers status on
the last day of the taxable year de-
termined the amount of his eXemp-
tions. If, the return having been
made on a calendar year basis, he
was married on December 81 he was
allowed the exemption granted a
married person for the full year
$4,000 or $2,5OO, according to the
amount of net incOme), though the
ceremony may have been performed
on that day. A person who became az
widow or widOwer during the year
and was not remarked on December
| 81 was allowed only a $1,000 eXemp-
tion granted a single person. If dur
| ing the year the head of a family
ceased the support in his home of
relatives, he was entitled only to the
| 81 900 exemption.
Under the revenue act of 1924,
the status of the taxpayer is deter
mined by appOrtionment in accord
ance with the number of months the
taxpayer was single, married, or the
head of a family. For example, a
taxpayer who marries on July l,
1924, will be entitled to an exemp-
tion of $1,750. For the first six
months of the taxable year he is
classed as single, emitting him to an
exemption of $50O-one-half Of the
81 900 exemption allowed a single
person-and for the last six months
he is classed as married emitting
him to an exemption of $1,250-One-
half of the exemption allowed mar
ried person. In such computations Il
fractional part of a month is disre-
garded unless it amounts to more
than half a month in which case it !
is considered a full month. These fig !
ures are based on the. assumption |
that the return is made on the cal
endar year basis, as most are.
The normal tax rates are 2 per |
cent on the first $4,000 of net income |
in excess of the personal exemp- |
ton and the credits for dependents, |
ETC., 4 per cent on the next-S4,000 |
and per cent on the balance. The |
surtax rates range from 1 per cent
on net incomes between $4,000 and
$4,000 to 40 per cent on net incomes
in excess of $500,000. Under the 1921
act the normal tax rates were per
cent on the first $4,000 of net income
above the exemptions and credits
and per cent on the remainder of
net income, while the surtax rates
ranged from 1 per cent on the
amount of net income between $4,000
and $4,000 to so per cent of the
amount by which the net income ex-
ceeded 100000.
The revenue act of 1924 contains
special provision for reduced taxes
appear in previous laws. All net in
come up to $4,000 is deemed to be
on earned income" which did not
earned income. On this amount the
taxpayer is entitled to. a credit of 25
per cent of the amount of the tax.
For example, taxpayer, unmarried
and with no dependents, whose net
income for 1924 is $4,000 would pay,
this reduction a tax of $50.
His actual tax is $780, From his net
income of $4,000 he is allowed a per-
sonal exemption of $1,000; the tax of
2 per cent on the $4,000 of taxable
income is $50, one-fourth of which,
or $40, may be deducted.
In no case is the earned net in
come considered to be in excess of
100000 A taxpayer, who receives a
salary of $4,000 for example, can
claim only $4,000 as learned net in
come"
In the case of a married man with
with no dependents whose earned
net income is $1,000 and who has
other income of $1,5OO, a total of
IS. 500, the tax, without the benefit
Of the 25 per cent reduction would
amount to S160-$8,500 less a per-
sonal exemption of $4,000 equalling
S6 700 on which the tax on the first
$4,000 at 2 per cent amounts to $50,
and on the next $4,000 at per cent,
to $50. On the earned net income
-he tax amounts to $100-$7,000 less
The exemption of $2,500 equalling
S4,5OO on which the tax on the first
"a 900 at 2 per cent amounts to $50
and on the remaining $500 at 4 per
cent to 500. One-fourth of the tax on
earned net income, or $25, can be
deducted from $160, leaving $135 as
.he total tax payable.
On a net income of $4,000 deriv-
ed by a taxpayer, unmarried and
with no dependents, entirely from
securities, the tax, considering the
first $4,000 to be earned amounts to
1920. Computed without the benefit
1f the deduction, it would amount to
5440.
Earned income is defined as
wages, salaries, professional fees,
md other compensation for person
Il services actually rendered, but
does not include that part of the
derived by the taxpay-
er for personal services rendered by
lim to a corporation which repre-
3ents a distribution of earnings or
Profits rather than a reasonable al
owance as compensation for person.
Il service actually rendered. In the
case of taxpayer engaged in a
rade or business in which both per-
iOnal services and capital are ma
erial income producing factors,
allowance as cOmpensa-