Liberty 4% Bonds, may be deducted in determining net income subject to surtaxes and excess profits taxes but not the normal income tax. Taxes Taxes paid within the year, imposed by authority of the United States (except income and excess profits taxes), or of its Territories or possessions, or any foreign country, or under the authority of any State, county, school district or municipality, or other taxing subdivision of any State, not including those assessed against local benefits, may be deducted. Customs Duties Customs duties paid during the year by an individual are allowable deductions as taxes or as part of the cost price of goods and merchandise if the individual is engaged in the importation of goods and merchandise. In the case of business, excise, license, or privilege taxes, they may be deducted either as taxes or items of expense, but not under both heads. Excess Profits Tax Although excess profits taxes may not be deducted as a general deduction, the law provides that credit may be allowed for excess profits taxes assessed for the taxable year. By this provision, income for 1917 is credited with the excess profits tax assessed for that year, for the purpose of determining net income subject to income tax. Taxes Assessed Against Stockholders Taxes assessed against the stockholders of a bank and paid by the bank in behalf of the stockholders, constitute an allowable deduction for the individual stockholder. A corresponding increase should, however, be made in the amount of dividends reported. Local Benefits Taxes paid on account of assessments levied by special districts, such as irrigation, reclamation, drainage, districts, etc., for sidewalks in cities, street extension, grading, paving, etc., are held to be "taxes assessed against local benefits." Such taxes are not allowable deductions in a return of annual net income. Losses Incurred in Trade or from Casualty Losses actually sustained during the year incurred in the taxpayer's business or trade, or arising from fires, storms, shipwrecks, or other casualty, and from theft, when such losses are not compensated for by insurance or otherwise, are proper deductions. Losses from casualty are deductible although not connected with the taxpayer's trade or business. If claim is pending for insurance, the loss shall not be taken as a deduction until the claim is settled. Basis of Determining Loss The loss sustained from the sale or other disposition of property, real, personal, or mixed, if acquired before March 1, 1913, is the difference between the fair market price or value of such property as of March 1, 1913, and the price for which sold; or if acquired on or after March 1, 1913, the difference between the cost and selling price. Persons Engaged in More Than One Business A person may have more than one business and may deduct losses incurred in all of them, provided that in each business it can be clearly shown that he is actually a dealer, or trader, or manufacturer, or whatever the occupation may be. Losses Must Be Actual Loss to be deductible must be an absolute loss, not a speculative or fluctuating valuation of continuing investment, but must be an actual loss, actually sustained and ascertained during the tax year for which the deduction is sought to be made. Dealers in Merchandise and Securities Until this year an inventory of merchandise was required in all cases to be made at cost. By a recent ruling, however, such inventory must be taken at the market value or cost, whichever is lower, provided the taxpayer's books are kept on that basis and that such method is followed continuously. Dealers in securities may avail themselves of this privilege, but only those engaged in the business of buying and selling securities come within the regulation, and individual investors are allowed to take losses only when determined by an actual sale. Losses Incurred, Not in Trade Losses, actually sustained during the year in transactions entered into for profit but not connected with the taxpayer's business or trade, may be deducted to the extent of but not in excess of the profits arising from such transactions; that is, losses incurred in connection with an "avocation"; that which takes one from his regular calling; a minor occupation. Bad Debts Debts due to the taxpayer, actually ascertained to be worthless and charged off within the year, are deductible. Debts Payable after March 1, 1913 Debts arising from unpaid wages, salaries, rents and items of similar taxable income due and payable on or after March 1, 1913, will not be allowed as deductions unless the income which they represent has been included in a return of gross income for the year in which the deduction as a bad debt is sought to be made, or in a previous year. Debtor a Bankrupt A debt due from a bankrupt is not to be deducted until all assets in the hands of the receiver have been distributed and the actual amount of the loss definitely ascertained. Determined to be Worthless Where all of the surrounding and attendant circumstances indicate that a debt is worthless and uncollectible and that legal proceedings to enforce payment would in all probability not result in the satisfaction of execution on the judgment, a showing of these facts will be sufficient to establish the worthlessness of the debt for purposes of deduction. Depreciation A reasonable allowance for the exhaustion and |