INDIVIDUAL INCOME TAX TABLE

This table shows the total Income Tax, under the Revenue Act of 1921, payable for the year 1922 by the head of a family or a married person living with husband or wife and with no other dependents.

Q. Arthur Graham, in making up his tax report for the calen dar year 1922, finds that he had ordinary net income from salary, rent and interest of $8,000; a profit of $108,000 from the sale of an office building which he had bought in 1919; and a loss of $6,000 from the sale of some securities which he had acquired in 1917. His personal exemption is $2,000. What is the amount of tax he must pay?

A. Mr. Graham may add the net profit from the sale of his office building and securities to his ordinary net income of $8,000 and compute the tax in the usual way at the regular normal and surtax rates; or he may figure a tax of 122 per cent on the net gain from the sale of the capital assets and add to it the tax on his ordinary net income of $8,000 computed in the regular way, whichever is to his advantage. If the second method is used, his total tax cannot be less than 122 per cent of his total net income. To illustrate:

Tax on ordinary net income.

Tax on capital net gain (12% of $102,000)..

Total tax by Option II.

Limitation on Tax

121⁄2 per cent of total net income ($110,000)..

20

$ 340 = 12,750 $13,090

$13,750

The

This amount, $13,750, being less than the $35,740 arrived at by the first option, is Mr. Graham's total tax liability. $13,090 arrived at by Option II cannot be used since it is lower than the minimum limitation set in Section 206 (b) of the Statute (page 62).

EXEMPT INCOME

Q. What income is exempt from tax?

A. Section 213 (b) of the Act, which may be found on page 67, enumerates certain items of income that are free from tax. These items may be disregarded and eliminated in computing gross taxable income, as no report need be made of them. The exclusion of this income should not be confused with the reduction of taxable income by the application of allowable deductions, for which see pages 22 and 69.

Q. The life insurance company in which I am insured pays a dividend annually on my policy, which has not yet matured. Is this dividend taxable income?

A. Dividends on life insurance policies that have not matured, whether drawn in cash or applied to the payment of the annual premium, are not taxable income. Dividends on paidup insurance policies, however, are considered income for surtax purposes, just as other corporate dividends are.

Q. Is alimony taxable income?

A. Neither alimony nor an allowance based on a separation agreement is taxable income to the recipient. The payor, on the other hand, cannot claim either as a deduction.

Q. I am a notary public commissioned by the State of New York. Are the fees I receive taxable?

A. Fees received by notaries public commissioned by States, or by persons serving on the jury of a State, County or Municipal Court, and commissions of receivers appointed by State Courts are not taxable income.

Q. What is the maximum amount of Liberty Bonds an individual may hold exempt from tax?

A. Interest on all Liberty Bonds, including the Treasury Bonds of 1947-52 issued October 16, 1922, Victory Notes, War Savings Certificates and Treasury Certificates of Indebtedness is entirely exempt from normal income tax.

In addition, interest on Liberty 32's and Victory 334's (not* 434's) is exempt from individual surtaxes for the life of the obligations, and Liberty 4's and 44's of the Second, Third and Fourth loans, Treasury Bonds of 1947-52, Certificates of Indebtedness and War Savings Certificates are exempt from individual surtaxes in the amounts specified for the following periods, regardless of whether they were originally subscribed for or subsequently purchased:

Period

For life of obligation.

For two years after date of termination of war, i.e., until July 2, 1923.

For three years after the expiration of the two-year period, i.e., from July 3, 1923, to July 2, 1926.

Holdings

Aggregate holdings of $5,000 par value of Liberty 4's and 44's, including Treasury Bonds of 1947-52; Certificates of Indebtedness, and War Savings Certificates; plus

$30,000 par value of Ist-2nd converted 44's of the issue of October 24, 1918; plus an aggregate holding of $125,000 par value of any Liberty 4's and 44's.

Aggregate holding of $50,000 par value of any Liberty 4's and 44's.

Q. I am a public school teacher employed by the City of New York. Is the salary I receive taxable?

A. No. Compensation paid its officers and employees by a State or political subdivision thereof is not taxable.

GROSS INCOME

Q. What items must I report as gross income?

A. All that you received during the taxable year in gains or profits or as compensation for services performed (not including exempt income provided for in Section 213 (b), page 67, and explained by Questions and Answers under "Exempt Income"). This includes salaries, wages, professional fees and commissions, profits from business operations or the sale of property, income *It should be remembered that the interest on Victory 44's is fully subject to individual surtaxes.

from stocks and other securities, interest on notes, mortgages and bank accounts, rents, royalties, etc.

Q. How do I determine the amount of gain or loss returnable for income tax purposes resulting from a sale of property?

A. Where property acquired on or after March 1, 1913, is disposed of, the basis for determining gain or loss is the cost of the property, except that where the property should be included in an inventory, the basis is the last inventory value.

Where property acquired before March 1, 1913, is disposed of, and the selling price is a figure between its original cost and its fair market value as of March 1, 1913, there is no gain or loss for tax purposes, even though there be an actual gain or loss. Thus:

In both illustrations the selling price is a figure between the cost and the March 1, 1913, value; hence there is no gain or loss. In all other cases where property acquired before March 1, 1913, is disposed of, the taxable gain or deductible loss is the difference between the original cost and the selling price, or between the March 1, 1913, value and the selling price, whichever difference is the smaller. To illustrate:

Q. In 1908, I bought an office building at a cost of $100,000 for the building and $25,000 for the land on which it stands. During 1912 I made some improvements to the building at a cost of $10,000 and in 1920 additional improvements costing $8,000. This property I sold in 1922 for $150,000. How do I compute my profit for tax purposes?

A. Since you acquired the property before March 1, 1913, it is necessary, before applying the rule given in the answer to the preceding question, to compare the selling price, $150,000,