I. GENERAL EXPLANATION. 1. The Income Tax Statutes. The War Tax Law enacted by Congress, October 3, 1917, increases the taxes upon incomes already subject to such federal taxes, and also imposes taxes upon many incomes too small to be taxed under the old law. The 1917 law refers to the prior law as to the manner of enforcing the new measure, and the determination, assessment, and collection of the new tax. For this reason the Treasury Department rulings, explanations, and decisions in point under the old law not only remain in force, but are substantially applicable and useful in explaining and enforcing the new law, as well as the existing law. 2. Persons Subject to Income Tax. The following are subject to the Income Tax: Every person not the head of a family receiving a net annual income of more than $1,000; every married man or head of a family receiving a net income of more than $2,000; every man and wife living together whose combined net income, together with that of their minor children, exceeds $2,000; every mercantile, manufacturing, or business corporation. * * * * * 3. Nature of Income. The law defines income to include "gains, profits, and income derived from salaries, wages, or compensation for personal services or from professions, vocations, businesses, trade, commerce, or sales, or dealings in property also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits, and income derived from any source whatever." 4. Income represents gains or additions to wealth and does not include moneys received in return for, or in exchange for, wealth already owned in a different form. For instance, if a man receives $100 in payment of a note which he has held as security for money loaned, such payment is not income because he already was worth the value of the note. But if he receives $6 as one year's interest on that note, that is income because it is what his investment earned for him. 66 5. Income Tax Schedules. The accompanying tables show the rate and amount of the tax upon the various incomes indicated. The tax consists of an ordinary tax, imposed by the law of 1916, and a war tax imposed by the law of 1917. Both the laws provide for a 'normal tax" and an "additional tax' upon incomes of individuals. Every individual pays a 2% ordinary tax under the 1916 law and a 2% war tax under the 1917 law upon every dollar of his net income over and above the exemptions. This is the normal tax. In addition, if his net income exceeds $5,000, he pays an additional 1% upon the excess up to $2,500, or an income of $7,500. If he receives more than $7,500, the excess beyond that amount, but less than $10,000, is taxed 2%. If he receives still more, a still higher rate of tax is imposed upon each succeeding part of his income. This is the additional tax. For illustration: a single man with a net income of $8,500 has an exemption of $1,000 under the 1917 law and pays a 2% war tax under that law upon the balance of his income, $7,500, or a tax of $150. He has an exemption of $3,000 under the 1916 law, and pays a further 2% ordinary tax under that law upon the remaining $5,500 of his income, or $110. On the amount of his net income between $5,000 and $7,500, he pays an additional tax of 1%, or $25, and a like tax of 2%, or $20, on the amount of his income between $7,500 and $10,000. His total tax is therefore $305. Normal Tax. INDIVIDUAL INCOME TAX RATES War Tax, 2% on excess over $2,000 (plus $200 for each dependent child), for a head of a family, or $1,000 for other persons. Ordinary Tax, 2% on excess over $4,000 (plus $200 for each dependent child), for a head of a family, or $3,000 for other persons. (Note. On incomes over $4,000, the total normal tax inay be conveniently computed by taking 4% of the entire net income and deducting $120 (plus $8 for each dependent child), for the head of a family, or $80 for a person not the head of a family. 6. Corporations, Domestic and Foreign. Corporations pay 6% upon their entire net income regardless of the amount, 4% as war tax and 2% as ordinary tax. Corporations organized in this country are taxed upon their income received from all sources. Corporations organized in foreign countries are taxed upon the net income received from sources in this country. 7. The term "corporation" includes all associations organized in corporate form (including limited partnerships and private banks), the net income of which is distributed among the members or share owners on the basis of the capital stock which each holds, or on the basis of the proportionate share of capital which each has invested. II. EXECUTING THE RETURN. 8. Persons Making the Return. The Income Tax is assessed on the basis of a sworn statement of income, called a Return, made by the individual or corporation receiving the income. An annual Return of income must be made by every corporation, by every single person receiving more than $1,000 net income, and by every person who is the head of a family who receives a net income of more than $2,000. Guardians, trustees, and other fiduciaries must make Returns on behalf of the persons for whom they act. 9. The Return Forms. The Return Forms may be had on application to the Treasury Department at Washington, or from the local revenue collector. All blank Forms referred to in this book may be had in like manner and therefore we do not use the space to print them here. 10. Filing the Return. Returns of individuals and corporations must be filed on or before the first day of March of each year, except that where a corporation makes its Return on the basis of a fiscal year, instead of the calendar year, the Return must be filed within sixty days after the close of such fiscal year. 11. The Fiscal Year. A corporation may designate the last day of any month as the end of its fiscal year and to have the tax computed upon its income for such fiscal year instead of for the calendar year. Notice of such designation must be given to the collector not less than thirty days prior to March first, and a Return must then be filed for the portion of the calendar year before the beginning of the fiscal year. When a fiscal year has once been properly designated, no further notice need be filed and the Return is due within sixty days after the end of the fiscal year. |