Evening star., 1941-12-21
Careful Study
Of Tax Losses
Advised
Many Citizens Fail
To Realize Importance
OF Capital Clauses
BY FRANK MacMILLEN.

INCdllN cNcIHDoON lS III IIleSe tlTleS +,
but, if you own land or securities,
are you sure you have done every
thing possible legitimately to hold
your taxes down?
There is nothing wrong with ap-
preaching the problem this way,
even in Wartimes. The Treasury
has long recognized that no citizen
or corporation Is expected to pay
more than the law requires, just
as it is not permitted to pay less.
For weeks past the stock and
bond markets have given evidence
that many big holders of securities
have been selling to establish what
Wall Street calls tax losses" to cut
their income taxes.
Many of these people have ex-
pensive tax conSultants and lawyers
to tell them what to DO. But ordi-
nary citizens who own little real
estate, a few shares of stock. a bond
or two. have not always realized how
these possessions can sometimes be
handled to hold taxes on income
down.
Uncle Sans rules on these kinds
of transactions fall under what is
known as the capital gains and
losses" provisions of the Federal
income tax law.
December 81 Is Deadline.
To take advantage Of these pro-
Wisconsin, they apply TO any given
individual case-sales of property or
securities must be made before jan
uary | if deductions are made on
the return which must be filed be-
fore March IS, next.
These provisions Of the law are
a little complicated, but they are
worth study by many small in
veStors.
They apply to individual incomes
not to those of corporations.
Gains or losses on the sale or ex-
change of capital assets are treated
differently from other income OF
losses on your tax return. The most
common forms of capital assets are
land or securities. Goods normally
held for sale. such as inventory, OF
depreciable assets, such as machin-
cry or buildings, are not considered
capital assets.
| For tax purposes, gains and losses
on capital assets are divided intl
Two classes. depending on the length
of time the asset was held. II the
asset was held less than l8 r1onths
the profit or loss is considered TO be
short-term If it was held more
than 18 months, it is a long-ternl
gain or loss.
Short-term gains are included with
and taxed the same as ordinary in
come Short-term losses, however
NAV be deducted from short-term
gains.
For example. if you had short
term gain of So 900 on the sale of one
lot of securities and a short-tern
loss of $4,000 on another lot. vou
could deduct only $1,000 of the short
term loss-that is, just enough Il
offset the short-term gain.
Long Term Different.
Long-term gains or losses are g
horse of a different color Only 6
portion of long-term gains and losses
are considered for tax purposes, de-
pending on the length OF time the
asset was held.
/ II you held an asset more than il
months, but not more than q
months, 6623 per cent of the gain ol
loss is recognized in computing youl
tax.
If you held an asset for more thar
"a months. only so per cent Of the
gain or loss is recognized.
However, the portion of a long
term loss which is recognized for ia,
purposes that is. 6621 or so per cent
depending on the length of time helc
may be deducted on your tax re-
turn even if it exceeds long term
gains.
For example, suppose your only
transaction affecting capital asset
was the sale of some land which yol
had held for 5 years and on which
you took a $4,000 loss. The recognized
portion of this long-term loss. so pei
cent or 81 900, could be deducted or
your tax return even though you hac
no capital gains.
| The law, however. provides two
methods for computing your taxes i
you have any long-term gains O
losses.
The first method is to include th'
recognized portion of your net long
term loss or gain with your Ordlnar,
income and figure your tax at th'
regular rates.
Alternative Offered.
The alternative method is to keel
long-term gains and losses entirel,
separate from your other income anc
pay tax on the recognized portion
at a rate of 80 per cent.
| Thus, if you have a net long-tern
gain, you will add 80 per cent Of thu
recognized portion to the tax on YOU
other income. If you have a net long
term loss, you will subtract 80 PEI
cent of the recognized portion from
/ your other tax.
1 Any one whose long-term capita
losses exceed his long-term capita
gains must calculate his tax b.
both of these methods and use th'
one which gives the larger tax. 1
your gains exceed your losses, yo'
NAV use the method which gives tn
smaller tax.
If you intend to sell securities II
establish capital losses. however, yol
should note two things: One is tina
a sale will not be recognized a
genuine if you buy, or have bought
identical securities within 80 day
after or before the transaction.
The second point is that If yo'
have bought several lots of the sam
security at different prices and Wlsl
to sell a particular one, you mus
specify the securities by number. I
this is not done, the tax authorize
consider that you have sold the 10
which was purchased first.