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exactly as if it had been enacted on March 1, 1913.19 Similarly if a person dies at any time after the 1st of January, 1917, his estate will be subject to the tax imposed by the 1917 Law.

19 Brady v. Anderson, 240 Fed. 665.

ᏟᎻᎪᏢᎢᎬᎡ 4

CITIZENS AND RESIDENTS OF THE UNITED STATES

All citizens of this country, residing here or elsewhere, and all residents of this country, whether citizens or not, are classed together for the purpose of the income tax.1

Extent to Which Taxable. Citizens and residents are taxable upon their entire net income received in each calendar year from all sources, except incomé declared by the law to be exempt. On dividends of corporations taxable under the act they are liable only for supertaxes. The regulations and rulings respecting taxable and non-taxable income are applicable to both individuals and corporations and are discussed in the later chapters on income.2

Deductions and Exemptions Allowed. Citizens and residents are allowed the following deductions in computing net income for the purpose of the tax. Many of the deductions are the same as those permitted to corporations and in such cases the deduction is fully discussed in a subsequent chapter. In this chapter only the special provisions applicable to individuals are discussed at length.

1 See preceding Chapter for definition of citizens and residents. 2 See Chapters 16 to 26 on income.

Business Expenses. An individual may deduct from his gross income all necessary expenses actually paid in carrying on any business or trade but may not deduct personal living or family expenses. A subsequent paragraph of this chapter defines what is held by the Department to be the meaning of the words "business or trade."

BUILDINGS USED FOR RENTAL PURPOSES. A landlord may claim as an expense any amounts for maintenance of the property or its use for rental purposes, including amounts paid for repairs, insurance, fuel, light and water, and janitor and elevator service, if any. Where the landlord occupies a part of the building as his own dwelling he should not deduct such proportion of the expenses of operating the building as inure to his personal benefit, as that part constitutes personal or living expenses which are not deductible. Thus, if a landlord lives in one-half of the building, one-half of the expenses are not allowable deductions in his return.

PERSONAL LIVING OR FAMILY EXPENSES. The personal living or family expenses which are not deductible under the law are intended to be those which are not incurred by the taxpayer in carrying on his business or trade. They include, for example, the expense of maintaining his home, payments to his servants, payments for the support and education of his children. Premiums paid for insurance on property occupied by the owner as a dwelling are a personal expense and not allowed as

3 The personal exemptions may be said to be an arbitrary sum allowed for such expenses.

4 Letter from Treasury Department dated February 26, 1915; I. T. S. 1917, ¶224.

a deduction. Premiums paid on life insurance by the insured are also not allowed as a deduction.5 Alimony is regarded as a personal expense and is not an allowable deduction.6

Interest. A citizen or resident may, with one exception, deduct all interest paid within the year on his indebtedness. This includes not only indebtedness incurred for business purposes, but indebtedness incurred for any purpose, such as for the purpose of buying a dwelling house or any article or thing of personal use. The one limitation on the amount of interest which may be deducted is with respect to interest paid on indebtedness incurred for the purchase of obligations or securities, the interest upon which is exempt from taxation as income of the individual.8

Taxes. Citizens or residents may deduct all taxes paid within the year imposed by the authority of any territory or possession of the United States, or any foreign country, or under the authority of any state, county, school district or municipality or other taxing subdivision of any state. Taxes assessed against local benefits, however, may not be deducted. Taxes imposed by the United States may be deducted, except income taxes and excess profits taxes. Inheritance taxes are held not to be taxes contemplated by this provision of the law.9

5 T. D. 2090.

6 T. D. 2090..

7 Telegram from Treasury Department dated February 16, 1915.

8 For a further discussion of this subject see Chapter 29.

9 For a further discussion of the rules relating to the deduction of taxes see Chapter 30.

Losses Incurred in Trade. Citizens and residents may deduct losses actually sustained during the year incurred in business or trade. A loss incurred in business or trade must be an absolute loss, not a speculative or fluctuating valuation of a continuing investment, but must be determined and ascertained upon an actual, a completed, a closed transaction.10

BUSINESS OR TRADE. Business or trade has been defined as being synonymous terms and to be "That which occupies and engages the time, attention and labor of anyone for the purpose of livelihood, profit, or improvement; that which is his personal concern or interest; employment, regular occupation, but it is not necessary that it should be his sole occupation or employment.' The doing of a single act incidentally or of necessity not pertaining to the particular business of the person doing the same will not be considered engaging in or carrying on business.11 "In trade" as used in the law is held to mean the trade or trades in which the person making the return is engaged; that is, in which he has invested money, otherwise than for the purpose of being employed in isolated transactions, and to which he devotes at least a part of his time and attention. A person may be engaged in more than one trade and may deduct losses incurred in all of them, provided that in each trade the above requirements are met. Losses on stocks, grain, cotton, etc., may be deducted by a person engaged in the trade to which the buying or selling thereof are incident as a part of the business, as by a member of a stock, grain, or cotton exchange, 12 but

10 T. D. 1989. Depreciation in the value of property is treated as a separate deduction and should not be confused with loss. 11 T. D. 1989.

12 T. D. 2090.

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