tories" should be as of the beginning and close of the period covered by the return and will embrace finished and unfinished products, raw materials, supplies, etc. Mercantile corporations will ascertain "Gross Income from Operations" in the same manner as manufacturing corporations, except that inventories will embrace merchandise or stock in trade, or on hand, at the beginning and close of the period, as well as the amount of the gross sales and purchases during the period. Other corporations will include as gross income the total revenue derived from the operation and management of the business and property of the corporation, together with all amounts of income, gains, or profits arising or accruing from all other sources, as shown by the books of account. DEDUCTIONS. Expenses, general, should be segregated and entered under the proper heading of the schedule at the lower left-hand corner of the back of the sheet. The schedule will not, however, include any items specifically called for under items 4b to 7b, inclusive, nor will the schedule include any items that have been taken into consideration in the inventory computation (3a) when ascertaining the "Gross Income from Operations." Line 1 should embrace the expenses of nonproductive, supervisory, executive and selling labor, commissions, etc., not including salaries paid to officers. Line 2 should include light, heat, and power expense. Line 3 should cover ordinary rentals. Line 4 may include incidental repairs, which do not add to the value or appreciably prolong the life of the property, or which do not constitute additions and betterments, the latter being properly chargeable to property account. Line 5 should not be used unless the corporation is paying interest on indebtedness wholly secured by collateral, which particular collateral securing the debt is the subject of sale in the ordinary business of the corporation. Line 6 should show total salaries paid to officers, including those stated in detail under item (4 (a) 8, which item, in detail, is required for information only. Line 7, "Other expenditures," may include such expenses as are not accounted for in any of the above items, and should be classified under three or four general heads, as indicated. Losses, to be deductible, must be definite, absolute, actually sustained during the period and charged off on the books, and will not include shrinkage in the value of securities or other assets. Appropriate explanation should be made in the space provided on the back of the form of each loss for which deduction is claimed. Decrease in value of stock inventory is not a loss contemplated to be treated here, but will be taken into account in the inventory in the computation under 3 (a) of the supplementary statement. Bad debts should be listed and date of charging off stated as to each. If the space provided is not sufficient to make such list, use additional paper and securely attach same to the return. Bad debts are not deductible as a loss unless at some time, either through inventory or otherwise, they shall have been taken up as income. Depreciation, deducted under item 5 (b), should be appropriately explained. If depreciation is claimed on more than one class of property at different rates, the cost of each separate class will be stated, with its corresponding probable life, the amount charged off this and prior years. The amount deducted must appear on the books of the corporation as a liability against the assets, and must be reflected in the annual "Balance Sheet." Depreciation on merchandise or stock in trade must not be deducted here, but should be taken into consideration through the inventory at the close of the year in computing 3 (a). Deduction as depreciation cannot be taken for such wear and tear as has been made good by repairs, deducted in item 4 (a). The depreciation deduction cannot be cumulative, but will consist of an amount measuring the loss due to use, wear and tear occurring during the period for which the return is made. Interest deductions should include only the interest actually accrued and paid during the period, and cannot exceed the amount set out in the instructions given under item 6 (a) of the supplementary statement. Appropriate explanation must be made in the space provided therefor. If space is not sufficient, additional paper should be used and attached to return. Interest cannot be deducted in excess of the amount actually paid, at the contract rate, upon a principal measured by the sum of the paid-up capital stock plus one-half of the interest-bearing indebtedness at the close of the period. W. H. OSBORN, Commissioner of Internal Revenue. (Form 1040 (Revised). RETURN OF ANNUAL NET INCOME OF INDIVIDUALS. (As provided by Act of Congress, approved October 3, 1913.) INCOME RECEIVED OR ACCRUED DURING THE YEAR ENDED DEC. 31, 191...... Filed by (or for)........................ (Post-office address.) of.. (Street and number.) (State.) COMPLETE ANSWERS SHOULD BE GIVEN TO THE FOLLOWING QUESTIONS. Did you render a return of income for the preceding year?. If so, in what Internal Revenue District was it filed?.. Were you single or married with wife or husband living with you on December 31 of the year for which this return is rendered? If married, give full name of wife or husband.. Has your wife or husband income from sources independent of your own?... Have you included your wife's or husband's income in this return? |