OCR Text |
Show I INCOME TAX QUESTIONS AND ANSWERS FROM OFFICIAL SOURCE c 1. Am I required to render a personal person-al income tax return for the year 1917? Yes, if unmarried and your net income in-come for that year equals or exceeds 1000. If you are married no return is required unless your net income, including in-cluding that of your husband or wife, equals or exceeds $2000. If you act as tho guardian of a minor or incompetent person, or as tho administrator, ad-ministrator, executor, or.trustce of an estate or trust, a return will be required re-quired of you for and in behalf of yourj ward, or tho eslato or trust for which you act, if tho conditions outlined under un-der the head of "Fiduciaries," as requiring re-quiring a return, arb present in your case. ' 2. Where should my personal return for tho year 1917 bo filed? Section S (a) of tho act of September Septem-ber S, 1916, provides that your return may be filed with the colloctor of internal in-ternal revenue for the district In which you have your legal residence or principal prin-cipal place of business. If your legal residenco is located in ono collection district and your principal place of business in another, it is optional with which collector your return shall bo filed; but for administrative reasons tho commissioner of Internal revonuo desires that it be filed wtih the collector collec-tor of the district in which your legal residenco is located. 3. When may my 1917 returns bo filed with a collector of internal revenue? reve-nue? On any day after December 31, 1917, but not later than March 1, 1918. 4. Will failure to file my return within tho time prescribed by law render ren-der me liable to any penalty? Yes. Under the provisions of Sec-tlon.lS Sec-tlon.lS of tho act of September" S, 1916, as amended, you will bo liable to a specific penalty of not less than $20 nor more than $1000 if you fail to have your 1917 return in the office of tho collector of internal revenue for your district before the close of business on March 1, 1918; and,, under the provisions pro-visions of Section 3176, roviscd statutes, stat-utes, you will also bo liable to 50 por cent additional tax. Therefore, you should uso extreme care to see that your return is placed In the mails in ample time to reach tho office of your collector before the close of business March 1, 1918. 5. May an extension of time beyond March 1, 191S. be obtained for the filing fil-ing of my 1917 return? Yes. If, on account of illness or absence ab-sence from home, you are unable to render your return within the time prescribed pre-scribed by law, you may obtain an extension ex-tension of thirty days If a request therefor is filed with tho collector of your district before the due date of the return. (See Section 3176, revised statutes). In this request you must state the reason why the return cannot can-not be filed within the time prescribed by law. Collectors of internal revenue are not authorized to grant extensions of more than thirty days, but tho commissioner com-missioner of internal revenue has authority au-thority under the provisions of Section 11 (c) of the act of September 8, 1916, to grant a reasonable extension beyond be-yond thirty days in meritorious cases. If you desire an extension of more than thirty days your request should bo addressed to the commissioner and should contain a detailed statement covering the reasons which make it impossible, im-possible, for you to file your return on or before March 1. 6. Would a personal return rendered by an agent, for and in my behalf, be accepted? s If by reason of illness, absence, or nonresidence, a taxpayer is unable personally per-sonally to render his return, he may appoint an agent to act for him, and tho return executed by the agent will be accepted if he makes affidavit that he has sufficient knowledge to make a complete and accurate return for his principal, and assumes responsibility for making tho return and incurring tho penalties provided for a delinquent, delin-quent, erroneous, false or fraudulent return. 7. What would happen should a taxpayer tax-payer render a false or fraudulent return re-turn with intent to evade a proper payment pay-ment of income tax? Under tho provisions of Section 3176, revised statutes, ho would become be-come liable to an additional tax of 100 per cent, and under the provisions of Setcion IS of the act of September 8, 1916, as amended, to a fine of not to exceed $2000, or to one year's imprisonment, impris-onment, or both, in the discretion of tho court and to the costs .of prosecution. prosecu-tion. S. May a husband and wife, living together, and each receiving an independent inde-pendent income, render separate returns? re-turns? Yes. If the husband and wife each receive an independent income' equal to or in excess of $1000, separate returns re-turns may be rendered. If. howover, the income of cither is less than $1000, but their combined income equals or exceeds $2000 a joint return should be rendered. 9. If a husband and wife render a joint xeturm is tho additional tax assessed as-sessed against that return based upon tho aggregate amount of income shown? No. The normal income tax will bo assessed against the aggregate amount reported by the husband and wife whether a joint or separate returns are 1 rendered, but the additional income taxes arc only assessed 'against the soparatc income of each. 10. Is a married man entitled to a personal exemption of $2000 and $-100 additional exemption on account of two dependent children, whose total 1 net income does not exceed $2100, but : does equal or exceed $2000, required to ' render a return? Yes. While ho will not bo required to pay an lncomo tax, he is required to render a return iX his not income J equals or exceeds $2000. 11. If an Individual engaged in busl- ness taken an inventory and closes his " books on any day during a calendar 1 year, car: he render his porsonal In- como tax return on the basis of that fiscal year? No. A personal income tax return cannot bo rendered for any other per- ifld than a full calendar year. i 12. Where can I get the blank form i ipon which to render my return? j From the- collector of internal reve- nuo for your district Tho collector ( xill endeavor to have such forms sent a you, but failure to receive ono will I lot excuse you from making a return. If you do not receive ono it is your c duty to request the collector to furnish you with a copy. Rate of Tax. 13. What personal income taxes are Imposed upon incomo received during tho calendar year 1917? In computing income tax liability for the year 1917, the normal and additional addition-al income taxes imposed by the act of September 8, 1916,and also tho act of October 3, 1917, are to bo considered. Under Section 1 (a) of tho former act a normal income tax of 2 per cent is imposed upon so much of an individual's, individ-ual's, net income, exclusive of that derived de-rived from dividends on tho capital stock, or from the net earnings of; corporations, cor-porations, joint-stock companies, etc., subjetc to like tax, as exceeds the amount of personal exemption to which he is entitled under Section 7; and so much of his total net income, including that derived from dividends and net earnings of corporations, as exceeds $20,000, is subject to the additional addi-tional income tax at the graduated rates prescribed by Section 1 )b). Under Section 1 of tho act of October Octo-ber 3, 1917, so much of the individual's net income, exclusive of dividends, etc. as exceeds the amount of personal exemption ex-emption allowed by Section 3, is subject sub-ject to an additional normal tax of 2 per cent, and that portion o'f his total net income, including dividends, as exceeds ex-ceeds $5000; is subject to the addition al income tax at the graduated rates, specified in Section 2, act of October 3, 1917. Exemption. 1-1. What amount of personal exemption exemp-tion is allowed by each of the two acts? Section 7 of the act of September 8. 1916, allows a personal exemption of $3000 to unmarried persons, plus $1000 additional if the person making the return re-turn bo tho head of a family or a married mar-ried man with a wife living with him. This additional exemption of $1000 is allowed if the person making tho return re-turn is a married woman with a husband hus-band living with her, but in no event shall this additional $1000 bo deducted by both husband and wife. " The exemptions allowed by section 3 of the act of October 3, 1917, are the same as under the act o'f September S, 1916, except that the exemptions of $3000 and $-1080 allowed bv the 1916 act are, respectively, $1000 "and $2000. In addition, a further exemption of $200 is allowed for each dependent child under 18 years of age, or over that age if incapable of self-support because be-cause mentally or physically defective, and this is allowed in computing normal nor-mal tax liability under both acts. 15. What is meant by tho term "head of a family?" Treasury decision 2-127 states that a "head of a family" is held to be a person who actually supports and maintains ono or more individuals who . aro closely connected with him by blood relationship, relationship by marrlage of by adoption, and whose right to exercise family control and provide for these dependent individuals individ-uals Is based upon some moral or legal obligation. 16. What income, if any, Is exempt? (a) The proceeds of life insurance policies paid to individual beneficiaries beneficiar-ies upon the death of the insured. (b) The amount received by tho insured, in-sured, as a return of premium or premiums prem-iums paid by his under life insurance, endowment, or annuity contracts, either eith-er during the term, or at the maturity, or surrender, of the insurance contract con-tract (c) The value of property acquired by gift, bequest, deviso or descent. It must be understood, however, that the ; income derived from such property is 1 taxable. ' (d) Interest upon the obligations of a state, or any political subdivision of 1 a state, or upon the obligations of the : United States, except in the case of 1 obligations of the United States issued ! after September 1, 1917, only to the 1 extent provided in tho act authorizing ! their issue. . I (c) Interest upon the obligations of 1 any possession1 of the United States, 1 or securities issued under the provi- sions of the federal farm loan act of '' July 17. 1917. i (f) The compensation of- the present president of the United States during ' the term for which he has been elected, elect-ed, and the judges of the supremo and 1 inferior courts of the United States in office on October 3, 1917. 1 (g) The compensation of all offi- 1 cers and employes of a state or any political subdivision of a state, except s when such compensation is paid by the United States government. This in- ' eludes the official salaries received by public school teachers, state and coun- 1 ty officers and employes of municipal- ; ities; but income derived by such per- sons from sources other than state, county or municipal funds, and they 1 other sources enumerated in this an- swer, is taxable. (Seo Section -1, act of September 8, 1916, as amended). 1 Income. 17. What is meant by the term "net c income?" f For the purpose of determining J whether or not a porsonal incomo tax turn should bo rendered, not in- come means your total net incomo less c tho exemptions specified in tho answer to the 16 questions and the general do- t ductlons specified in tho answer to tho 45th question. e IS. If rendering a return, what Items of income must I report under gross in- r come? t Under gross income should be reported re-ported every item of incomo derived i from any source whatever (except t those specified in the answer to question ques-tion 16, actually received during tho calendar year for which tho return is t rendered, whether received in cash or ii Iho equivalent of cash. Including: (a) All amounts of salary, wages, c commissions or compensation of -what- o ever kind, received for personal serv- c co, including professional fees. (b) All amounts of gain, profit or in- f como derived from a business, trado, "? commerce, or from any sale of proper- ti Ly, real, porsonal or mixed. The meth-Dd meth-Dd of ascertaining the amount of gain c jr profit derived from a sale i3 out- fJ lined in the answer to question 23. c (c) Rents, Interest of notes, mortgages, mort-gages, decd3 of trust, or other securi- 1 ics Issued by individuals, partner- r ships, otc, interest on bonds, mort- P ;agcs, deeds of trust, or other similar p )bligations of corporations, joint-stock t :ompanies, associations or Insurance :ompanIes, and Interest on bank depos- w ts.y ti fd) All incomo received from fidu- s :larlcs, that Is, amc-unls received from w incomes of estatos, trusts, etc., through trustees, administrators or executors. ex-ecutors. (e) If you havo an interest in a partnership you should report your distributive dis-tributive share of the earnings or profits prof-its of the partnership ascertained during dur-ing tho calendar year for which tho return is rendered, whether distributed to you or not. That is, if the fiscal year of tho partnership ends on De-comber De-comber 31 of that year, your distributive distrib-utive sharo of its earnings or profits ascertained upon tho close of the books on Deccmbor 31 should be returned. re-turned. If tho partnership ends itsfiscal itsfis-cal year on some day during the calendar cal-endar year, your distributive share of its earnings or profits ascertained at that time should be reported. (f) All Items of foreign income, that is, interest upon bonds and mortgages, or deeds of trust, or other similar obligations ob-ligations issued by individuals who are citizens or residents of foreign countries, coun-tries, foreign corporations, joint-stock companies, etc. (g) Royalties from mines, oil and gas wells, patents, copyrights, franchises, fran-chises, or other legalized privileges. (h) Dividends on stock, or from the net earnings of domestic corporations, joint-stock companies, associations or insurance companies, whether paid in cash, stock or script. As tho net earnings earn-ings of corporations, joint-stock companies, com-panies, etc. aro subject to tho tax imposed im-posed upon tho net Incomo corporations, corpora-tions, dividends from such net earnings earn-ings are not subject to the normal Income In-come tax in the hands of the shareholders share-holders receiving tho same; but they aro to be returned for tho additional tax purposes and are subject to that tax. The rates of tax to be assessed against a dividend received during tho year 1917, or any subsequent year, are covered by the answer to question 43. 19. If my salary for December, 1917, is not paid tox me until some day in January, 1918, or later, is its amount to bo included in my 1917 return? It is to bo returned for the year during dur-ing which it was actually received by you. 20. "A" is employed by a corporation at an annual salary of $3000. Tho corporation, cor-poration, being in financial straits, only paid "A" $2000 during each of the years 1915 and 1916. In 1917, "A" received re-ceived his salary in full plus the bal ance of the salary due him for tho two previous years. Must he include the full amount received ill 1917 in his return re-turn for that year? Yes. $5000 should bo returned and that amount will bo subject to income tax at the rates prescribed for the year 1917. 21. If an employer agrees to pay an employe a certiin stipulated salary and furnish him with room and board, are tho latter items to be considered in computing income tax liability? Yes. A fair rental value Is to bo placed upon the room and a fair value upon the meals furnished, and their amounts reported as Income by tho employe. If the services of the employe em-ploye are used in the employer's business busi-ness or trade, the latter may claim the rent paid by him for the room, if any, and tho actual cost of the meals so furnished fur-nished as a deduction under tho head of business expenses. 22. If I enter into a contract In 1917 which will not bo completed until 1918, and which requires me to make expenditures for material and labor, provide for possible losses, etc., must I include the advance payments I receive re-ceive in 1917 in my return for that year? No. As you are unable to determine what amount of ga,in or profit you will derive from the contract until it is completed, the payments received thereon during 1917 need not be included in-cluded in your return for that year. When the contract is complete the net gain or profit derived therefrom should be reported under gross income in your return rendered for the vear 1913. 23. How am I to determine what amount of gain or profit derived from a sale of property is returnable for income in-come tax purposes? If you acquired the propery sold prior to March, 1913, you should take Its fair market price or value as of that date, add thereto all" amounts subsequently sub-sequently oxpended in making permanent perma-nent Improvements, then deduct the aggregate of all claims for depreciation deprecia-tion in value of property claimed as deductions de-ductions on previous returns, and tho ilfferenco between the result thus obtained ob-tained and tho selling price is the amount to be reported under gross income. in-come. Q If you purchased tho property on or ifter March 1, 1913, tho difference between be-tween the cost, plus all amounts subsequently sub-sequently expended for permanent im- provements less depreciation previously previous-ly claimed, and its selling price, is to J te rotflrned. i If the property camo to you on or lfter March 1, 1913, as an inheritance, , the difference between tho appraised I value placed upon it at that time plus I ill amounts subsequently expended for ( permanent improvements less depreciation depreci-ation previously claimed, and its sell-ng sell-ng price, is to be returned. 24. When is a farmer to return for :ax purposes the value of crops and Jtock produced? Tho value of grain, stock and other jroducts produced on a farm Is not :onsidered income until reduced to ash or the equivalent of cash. There-ore, There-ore, if crops and stock were produced n 1916 on a farm owned by you and hey were sold in 1917, the total imount received therefor is to be in-:luded in-:luded under grosts incomo in your I .91T return. Crops and stock pro-luccd pro-luccd in 1917, and on hand December i II of that year, need not bo consider- I ;d; but tho amount received there- j or should bo included in your return endercd for the year during which I hey aro sold. 25. I ront a farm on shares. When 3 my sharo of tho crops and stock to j e taken Into consideration? Only for tho year in which sold. 26. Is a farmer required to report I he value of tho farm produce which I s consumed by himself and family? ) No, but any amount of exporiso in- urrcd in producing garden truck, or f thor products so consumed, cannot be ( laimcd as a deduction. i 27. If a farmer exchanges produce F jt merchandise, groceries, etc, is the -aluo of such merchandise to be re- irned for tax purposes? k Yes. Tho prico placed by tho mcr- f hant upon tho goods exchanged for r inn produco is to bo Includcdns in- 1: omo In the farmer's return. w 28. A tenant, under the terms of a :ase. Is required to pay a certain cash tj 2ntal and in addition mako certain im-rovements. im-rovements. Is the cost of these Im- : rovemonts held to be taxable Income ) the property owner? Report each rental for year in f hich received. Tho difference be- it veen cost of improvement and a rca- a inablo allowance for the exhaustion j ear and tear of the property arising ji out of its use of employment in the business or trade of tho lessee during tho period of its life under tho lease, should bo returned as income by the lessor, for the year during which the lease terminates. (See T. D. 2442). 29. Special payments designated as "bonuses,' are often made to officers and employes of corporations, firms, and individuals. Are such items of In como subject to tax in tho Jiands of ' r-their r-their recipients? i '' 1 Any bonus, or other item of compen- ; t sation, paid to an employe in addition U to his regular salary or wage under a ; k 9 contract expressed or implied, as addi- ' tional compensation for services ren- a dered, as a reward for past endeavors, i" p such Items as are subject to the In"' f f ' come tax. i r |