OCR Text |
Show More About Your Income YOUR FEDERAL INCOME TAX No. 16 Computation Of Tax On Individuals The normal tax and the surtax sur-tax an individuals lor 1941 are computed on their normal tax net income and surtax net income, in-come, respectively. The .following example will show how to compute the nor-pnal nor-pnal lax and surtax on, a net in-com; in-com; oi $8,500, all of which represents rep-resents earned net income, the taxpayer b.ing single and .vita-out .vita-out dependents: Net income $8,500.00 Less personal exemption 750.00 Balance (surtax net income in-come 7,750.00 Earned income credit.... 850.00 Net income subject to normal tax 6,900.00 Surtax upon the surtax net income of $6,000 560.00 Surtax oJ 17 percent upon amount of surtax net income in-come in excels of $6,000 ib' t no', over $8,000, 17 per cent on $1,750 297.50 Total surtax 857.50 Nonmal tax, 4 peT cent on $6,900 276.00 Total normal tax and surtax $1,133.50 Taxpayers are urged to riead carefully and understandingly ail the instructions accompanying accompany-ing the income-tax .forms before be-fore preparing their returns. If they neiad any help they can get it without cost toy consulting the nearest collector of internal revi.nue, deputy collector, or internal in-ternal revenue agent. Your Federal Income Tax No. 17 Earned Income Credit The law allows in computing the normal tax a! an individual an earned income credit of 10 per cent of the .earned net income, in-come, ibut not in excess of 10 per cent of the net income. "Earned income" is defined' in the law as wages, salaries, professional pro-fessional fees, and other amounts received as compensation ifor personal services actually rendered. ren-dered. Whene a taxpayer is engaged en-gaged in a trade 'or businessi in Ahich both personal services and capital are material income-prodiucmg income-prodiucmg factors, a reasonable alloi-vance as compensation, tor personal services actually rendered ren-dered by the taxpayer, not in excels of 20 per cent of his shara of the rust profits of such trade or business, is considered as earned income. "Earned, nsi. income" means the excess ai the amount of the earned income in-come over the sum of the "earned "earn-ed income adductions," which are the ordinary, and necessary iexp;nsies properly chargeable against earned income. The entire en-tire amount o.f the taxpayer's met income up to and including ?3,000, regardless of the source, is consdei'ed earned net income-. In no case is the earned net income in-come to be considered to foe more than $14,000. Your Federal Income Tax No. 18 Exemptions Allowed Couples Married Daring Taxable Year The credit for dependents as well as the personal exemption is required to be prorated where a change of status occurs during the taxable year, except where the taxpayer is eligible and elects to compute the tax at the optional rates with the use of the simplified Form 104OA, and these credits are allowable mot only for the purpose of computing the normal tax but also the surtax. The proration is to bo .made in accordance wi h Vm number of months the i-.xaytr occupied each sta.us, a." (I fractional part of a month to ri-sregaiijed unless it t ji nts to more than 'half a mc .. .-, ir which case it is con- . ed a month. r'or exampl-, if a tingle man and a singl: woman, ivvere mar-r.:d mar-r.:d on July 20, 1941, and lived together during the remair.'i.r of fcv year, Juy Aould foe on-.itlcd on-.itlcd li a personal exemption of $1,500 in a joint return on Fo,jm 1 U-10 for the calendar year iik I, which, amount is seven ..velfths of $7j0 tor the hus-Land hus-Land while single, plus seven-tMi.Lths seven-tMi.Lths oT $750 i.or the wife : niie single, plus five-twelfths of 1,500 for Uie period during .'.rich they were married. If iu.'ir.g the year 1941 the hus-La hus-La id or .he w i.a had the status cl the head of a family prior to t.ieir marriage, he or she would :.. entitled to his or her pro rata ihare of the personal exemption ex-emption of $1,.500 allowed the head of a family ifor the period prior to their marriage instead of that allowed a single person. For the period of their marriage any exemption to wthich either .might ibe entitled as the head of a ; amity would foe merged in t.-,e joint personal exemption. The joint personal exemption al-.oinaole al-.oinaole in the case of a couple who were married and living together during the entire year may not exceed $1,500. I: a child under 18 years of age reaches .the age of 18 years during the taxable year, the credit, of $400 is required to foe prorated in the same manner as Lne personal exemption. For i.xample, should the child's eighteenth1 birthday fall on June jO, the parent would foe entitled en-titled to claim $200 credit ifor the depcmlien.t child that is, one-half of $400. The same rule applies to other dependents where a change of status occurs cliuiing the taxable year. I' the tax is computed at the optional rates with the use of the simplified Form 1040A, the taxpayer's status on the last day oi the taxable year governs he determination of whether a person is living iwith husband or wife, is the head of a family, or is a dependent. Your Federal Income Tax I No. 19 Who Is The Head of a Family For income tax .purposes I Cer can only foe one head oil' a family. In addition to being tr;.i c.-.le: Unsocial" support, 'the r.ead c a .family must 'foe related re-lated 'by .blood, marriage, or .adoption to V.is dependents, and I he must have a legal or .moral j obligation to exercise family con .rol over them and provide for their care. As such', he is j entitled to .tine same exemption allowed a married personi 'that !ii', $1,500. I There are some lunsual cases under this clastiiiTication. A single pereon who supports and maintains in- one household one jor mora individuals who are closely connected with him by cloud, by marriage, or by adoption, adop-tion, and whose right to exercise exer-cise family control and provide for t'hem is 'based upon a legal or moral obligation, is the head of a family, and as such is entitled en-titled .to the exemption allowed a married person that is, $1,500 in addition, he may claim a cneiit ctf $400 for each of such individuals who is under 18 yean; o' age or incapable of self-support self-support because mentally or physically fief active, except if the taxpayer occupies -Jhe status of t::e head of a family solely .by reason of the existence oi one or more a; such individuals, the credit of $400 for one of such individuals is not allowable. allow-able. Another example not so much out of the usual is this: A wi-doU'er wi-doU'er wtho supports in his household his. aged mother and his child 17 .years of age is the bead of a family, and as such is entitled Co an exemption Ol $1,500 and a credit of $400 for one dependent. Your Federal Income Tax No. 20 What Is A "Family"? "In one household1" is a iphrase which confronts many taxpayers wnen they make out their income tax returns. What e.o the- regulations mean when .hy classify as the head of a amily one who actually supports sup-ports and maintains "in one household" a certain 'number of cependen.s u'or which 'hie is allowed al-lowed a personal exemption of $1,500 as the head of a family? income tax regulations are not narrow in interpreting this phrase. It may mean the taxpayer's tax-payer's personal residence, an apartment, rooms in a boarding house, living quarters in .a hotel, or such other place as she or he may occupy as a temporary or permanent residence. It is inot always necessary that a taxpayer and his dependents de-pendents live under one roof the entire year in order that he foe allowed the exemption given the hLad of a family. If the common home is maintained, and tne parent is away much oi' .he time on ousiraess, or a child is away at school or on a visit, that is still "one household," amd the extmption is allowed. If it it .unavoidable for a parent to keip his children with relatives, or in a boarding house, while :;i.ft lives elsewhere that constitutes con-stitutes "one household." But a p rson who gives .he depen-uent depen-uent a.' another a home is not, una t the income tax regula-ion regula-ion , the head of a family. Ai. "..oth..r term that may be, in some cases, confusing or per- plcxing to many taxpayers is "living together", in the case of husband or wife. Again the income in-come .tax regulations are liberal in interpreting a phrase which, precisely defined, might do an injustice to a taxpayer. When a common home is maintained, ej.'.d 'it ;becomes necessary for ..he husband .to foe away on business occasionally or tem-poraily, tem-poraily, or the wife is absent on a visit, the $1,500 exemption still applies. The relation is not changed, meither the exemption exemp-tion forfeited, if eitlheir husband or wife is unavoidably confined in .a 'Sanitoriuim. |