Evening star., 1932-03-13
Your Income Tax
No. IA
Losses From Casualties and
Theft.

To be deducted loss arising from
fires, storms. shipwrecks or other
casualty" need not be connected with
the taxpayers trade or business. If
his home or his automobile is destroyed
by fire, or his Summer bungalow dam
aged by food or storm, he may claim
/ a deduction for the loss sustained.
Loss of property by theft or burglary
is an allowable deduction and need not
be incurred in trade or business. Hence
the loss occasioned by the theft of
| Jewelry or an automobile used for
pleasure and convenience is deductible
1t must be established, however, that
the property actually was stolen
| Should circumstances attending the loss
! leave the owner in doubt as to whether
it was stolen or lost, the claim would
not be allowed.
! Only definitely determinable losses
| are deductible. Prospective losses are
not allowed as a deduction. If a pur-
chaser, other than a dealer in securi-
ties, purchased stock of a corporation
! during the year 1891 at $50 share.
and if at the end of the year its value
dropped to $50 a share, he is not per-
| mitted to deduct the loss because of
the Shrinkage in value. If he had sold
it in 1881 at $50 a share the loss of
$40 would be deductible. If during
| 1881 it had been definitely determined
that the stock was valuelesS a loss Of
$50 would be deductible
A loss is deductible only in the year
| in which 1t is sustained, even though,
as in the case of a theft or casualty,
| it may not be discovered until a later
year. Losses compensated for by in
surance or otherwise, of course, are not
deductible
Bad debts constitute a considerable
item in the returns of many taxpayers
| and< may be treated in one of two
Ways-either by deduction from gross
income in respect to debts ascertained
10 be worthless either in whole or in
part or by deduction from a rea-
sonaole reserve for bad debts. Tax
players were given an option for 1921
20 select either of the two methods
The method used in the return for
1921 must be used in returns for sub
sequent years, unless permission is
granted by the commissioner of internal
revenue TO change to the other method.
Application to change must be made at
least 80 days prior to the close of the
taxable year for which the change is
to be effective. However a taxpayer
| filing first return in 1881 may select
either of the two methods, subject to
approval by the commissioner upon
examination of the return. Permission
to adopt the reserve method is limited
to taxpayers having a large number of
accounts where credit Is extended over
considerable period of time. 1t is
not granted for the purpose of han
ding one specific debt
What constitutes reasonable addi-
ton" to q reserve for bad debts must
be determined in light of the facts and
will vary as between classes of business
and with conditions of business pros
perity. A taxpayer using the reserve
method should show in his return the
volume of charge sales (or other busi-
ness transactions) for the year, and
the percentage of the reserve to such
amount, the total amount of notes and
accounts receivable at the beginning
and end of the taxable year, and the
total amount of debts ascertained to be
worthless and charged against the re-
serve during the taxable year