Evening star., 1954-08-09

benefit more individual taxpay-
-ers than any other one part OF
the new tax revision law.
Experts estimate almost 10
million persons will pay reduced
Sixth Of o Series.
income taxes next spring because
Of much faster deductions fol
wear and tear on new equipment
or buildings.
A farmer can benefit II he gets
a new tractor or barn; d grocer
or other shopowner can benefit
if he buys a new display counter;
a lawyer can benefit on books for
his law library: a doctor gets a
tax cut on new medical equip
ment; q landlord benefits on per-
manent improvements to his
property; even a writer can bene-
fit If he buys a new typewriter,
Altogether. individual taxpay-
ers are expected to get. tax re-
ductions from this provision
amounting to $73 million the
first year, much more later. The
same provision will cut taxes on
an estimated 100000 corpora
tions by about 1921 million the
first year.
Can't Deduct Home.
You can claim depreciation
deductions on buildings or equip
ment which are used In produc-
ing income and which have q
useful life Of three years or more.
You can't deduct. for example,
on a home or car not used in
business. If the useful life is
less than three years. you deduct
the cost Of the item as a regular
business expense but not as de-
probation.
Depreciation deductions are
spread over the years Of useful
life of an item. They add up
eventually to the total cost OF
the item. They are deducted
from your income, before you
apply the tax rate.
The new law permits much
bigger deductions on new equip
ment or buildings in the first
years Of useful life. That means
smaller deductions toward the
end of the period Of useful life.
For millions of taxpayers, it
means substantially lower taxes
over the next few years.
And you can wind up with a
big overall tax cut If you sell
the item before its useful life
is over-after taking the big
deductions in the early years.
Effective Date.
The more liberal treatment
applies to new equipment bought
after last December 81. or to con-
struction started after December
81. If construction was started
before then, but completed later,
the more liberal allowances ap-
ply only to that part Of the con-
struction cost after December 81.
The new deductions may be
claimed in 1854 tax returns due
next April Is.
Note: You can't claim the new
deductions if you buy used
equipment. The old rules still
apply in that case.
Under the old law, generally
you figured the useful life Of the
new item and deducted the cost
in equal annual installments over
that period. Thus a $4,000 item
with 10 years Of life would mean
a $1,000 deduction each year for
10 years. This is called the
"straight-line" method.
Under the new rules, you are
given several possible new meth
ods of figuring deductions. The
most important are called the
declining balance" method and
the "sum of the years digits"
method. They sound frightfully
complicated. but they aren't so
difficult when you sit down TO-
work them out.
Under the declining balance,
first you figure the percentage
deduction allowed each year
under the old law. In the ex-
ample above, that would be 10
per cent. Then you double the
percentage. In this example, you
get 20 per cent.
Now, for the first year, you
deduct that percentage from the
total cost. Thus the first year
you get a deduction of $4,000 in
stead of $1,000. And each Sue
ceeding year, you apply that
same 20 per celit to the remain
ing balance of the cost-not to
the entire cost. You have already
deducted $4,000, so in the second
year you would deduct 20 per
cent of $4,000, or $1,000. The
third year you would deduct 20
per cent of 6,400, or $1,280.
In the first three years under
the declining balance method,