The Waterbury Democrat., 1935-03-08

ouutptlOu OL aDltlLy 10 pay, or upon the theory that those receiving the larger incomes should pay propor- tionately greater percentages to the support of the government which provides security for them In their undertakings.
 The normal tax rate, as stated above, is 4 per cent, and this tax Is levied upon the amount of net in- come in excess of the personal ex-. Eemption, credit for dependents. dividends, and other allowable credits.
 The surtax rates begin on surtax net incomes in excess of $4,00O and the rate increases in accord anee with the amount of the sur- tax net income. The stirtax net in- come is the net income In excess of the personal exemption and credit for dependents only.
 The revenue act of 1884 provides for a 10 per cent earned Income credit, this means that, having de- termined net income, the taxpayer may deduct therefrom before the computation of the normal tax. an amount equal to 10 per cent of his earned net income. This credit can fin no case exceed 10 per cent of the entire net income.
 If the taxpayers net incofhs is not more than $3,0O0, whethes earned or from Investments, the entire amount thereof is consid- cred earned net income. His earned net income shar not in any case be considered to be less than $3,000 if his net income for all sources is in excess of that amount, but in no case can the earned net income for this purpose be considered to be more than $14,000. Earned income includes income from wages, salaries, pro- fessional fees, and other amounts received as compensation for per- sonal services actually rendered.
 The 1884 act denies deductions for losses in the case of sales or exchanges of property directly or indirectly between members of family and (except in the cases of distribution in liquidation) between an individual and corporation in which such individual owns drectly or indirectly more than 50 per cent in value of the outstanding stock.
 Property Sales
 Profits derived from the sale of property not held primarily for sale of property not held primarily for sale in business regularly en- gagged in by a taxpayer are called Capital gains. Losses as a result of such transaction are called capital losses"
 An entirely new treatment of capital gains and losses is provided in the revenue act of 1884. In computing the net income of tax payer, other than a corporation, the amount of the gain or loss upon the sale or exchange of capital asset is taken into account only to the extent provided in sec- ton 117 (A) of the act.
 The percentage of the gain or loss to be taken into account ranges from 100 per cent to 30 per cent, depending upon the per- iod for which the asset was held. For instance, if unimproved real estate which is capital asset, pur- chased for $20,000, is sold for $25,00O after having been held for more than ten years, only 30 per- cent OI IHc TCCO6hAAGu eoAA ($5,OOO) or $1,5O0 is taken into account in computing net income; or if such property was sold Tor s14,0O0, only 30 per cent of the recognized loss ($6,000) or $1,S00 Is taken into account.
 A limitation on deductions Tor capital losses is provided affecting all taxpayers including corpora tions, that is, losses from sales or exchanges of capital assets shall be allowed as deductions only to the extent of $2,00O plus the gains from such sales and exchanges.
 Severe penalties are provided for wilful failure to make and file re- turns on time and for wilfully making false or fraudulent returns, the penalty for wliful failure to make and file a return on time be- ing not more than $10,000 or im- prisonment for not more than one year, or both, and in addition 25 per cent of the amount of the tax, and the penalty for making fraudulent return being not more than S10,000 or imprisonment for not more than five years. or both, together with the costs of prosecu- tion. s.
 The bureau of internal revenuc intends to protect taxpayers from such penalties if possible. and Tn the remaining days before the close of the filing period, it's agents will render to anyone who Is re- uuired under the law to file a re- turn ali possible assistance.
 All income tax payers are re- ouired to file with their income tax return, a separate form giving per tinent information taken from the income tax return. Unless this form is filed by the taxpayer. the internal revenue collector himself will prepare one at a cost of $5 to the taxpayer.