be estimated by deducting the purchase money from the gross receipts from the sale. 7 Int. Rev. Rec. 58.

That produce returned in 1863 at $1,150, and sold in 1864 for $2,000 was to be returned as income for 1864 at $2,000. 41 U. S. Rev. Journ. 98.

DEDUCTIONS - BUSINESS EXPENSES-IN

TEREST

TAXES LOSSES, ETC.
EXCLUSIONS

That in computing net income for the purpose of the normal tax there shall be allowed as deductions: First, the necessary expenses actually paid in carrying on any business, not including personal, living, or family expenses; second, all interest paid within the year by a taxable person on indebtedness; third, all National, State, county, school, and municipal taxes, paid within the year, not including those assessed against local benefits; fourth, losses actually sustained during the year, incurred in trade or arising from fires, storms, or shipwreck, and not compensated for by in

surance or otherwise; fifth, debts due to the taxpayer actually ascertained to be worthless and charged off within the year; sixth, a reasonable allowance for the exhaustion, wear and tear of property arising out of its use or employment in the business not to exceed, in the case of mines, five per centum of the gross value at the mine of the output for the year for which the computation is made, but no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made: Provided, That no deduction shall be allowed for any amount paid out for new buildings, permanent improvements, or betterments, made to increase the value of any property or estate; seventh, the amount received as dividends upon the stock or from the net earnings of any corporation, joint stock company, association, or insurance company, which is taxable upon its net income as hereinafter provided; eighth, the amount

of income, the tax upon which has been paid or withheld for payment at the source of the income, under the provisions of this section, provided that whenever the tax upon the income of a person is required to be withheld and paid at the source as hereinafter required, if such annual income does not exceed the sum of $3,000, or is not fixed or certain, or is indefinite, or irregular as to amount or time of accrual, the same shall not be deducted in the personal return of such person. The net income from property owned and business carried on in the United States by persons residing elsewhere shall be computed upon the basis prescribed in this paragraph and that part of paragraph G of this section relating to the computation of the net income of corporations, joint-stock and insurance companies, organized, created, or existing under the laws of foreign countries, in so far as applicable.

That in computing net income under this section there shall be excluded the interest

upon the obligations of a State or any political subdivision thereof, and upon the obligations of the United States or its possessions; also the compensation of the present President of the United States during the term for which he has been elected, and of the judges of the supreme and inferior courts of the United States now in office, and the compensation of all officers and employees of a State or any political subdivision thereof except when such compensation is paid by the United States Government.

In the act of 1894, § 28, the language, new in that act, was, "the necessary expenses actually incurred in carrying on any business, occupation or profession."

The provisions as to taxes are similar to these in former acts except that the words "school" and "not including those assessed against local benefits" appeared first in the act of 1894, § 28. Former acts contain the words "whether such person be owner, tenant, or mortgagor."

As to losses, "storms" and the clause "and

not compensated for by insurance or otherwise" appeared for the first time in the act of 1894, § 28.

As to worthless debts, the clause" and charged off during the year" appears for the first time in this act.

The clause "a reasonable allowance for the exhaustion, wear and tear of property arising out of its use or employment in the business, etc., is new.

Much of what follows beginning with "seventh" is new. However, in the last paragraph of § 28 of the act of 1894 it is provided that the amount received on dividends of corporations, etc., shall not be included if the tax has been paid on the net profits by the corporation, etc., as required by the act. By § 33 of the act of 1894, it was provided that paymasters, etc., should withhold at the source the tax upon the salaries of the United States officials.

The provision as to the obligations of a State appears to be new. It is provided in § 28 of the act of 1894 that in estimating gains, etc., there should be included income from interest on bonds, etc., "except such bonds of the United States the principal and interest of which are by the law of their issuance exempt from all Federal taxation."