Exhibitor's Trade Review (Nov 1924 - Feb 1925)

Page" 20 Exhibitors Trade Revievc What You Should Know of Taxes By M. L. SEIDMAN of Seidman & Seidman THIS is the second of a series of articles on how to prepare income tax returns that will appear regularly in these columns. Mr. Seidman is Chairman of the Committee of Tax Consultants of the Committee of American Business Men. He is a well known tax expert and has written nurnerous articles on taxation. Mr. Seidman will answer all questions on the subject directed to: him by our readers. Such questions should be addressed to this publication, addressed to the Tax Editor. To receive attention, all communications should be signed by the writer. Mr. Seidman's answer, however, when published, will not reveal the identity of the inquirer. In the previous article there was explained the class of persons subject to the income tax law. It was there pointed out that all persons who come under the law do not necessarily have to file returns, but that the requirements as to filing returns are covered in a distinct set of rules. It is the explanation of these rules that will form the basis of this article. So far as the individual is concerned, the requirements are based upon the size of his income. In the first place, every individual that has a gross income of $5,000 or over must file a return; It should be noted that the requirement is a $5,000 gross incorne, not net income. It may be that an individual has no net income, or on the other hand, has actually sustained a net loss. Yet if his gross income is $5,000 or over, he must file a return. By gross income is meant the total income from salaries, professions, businesses, mterest, rent, dividends, etc., before considering the deductions allowed by law. The gross income from a business is determined by deducimg from the sales, the cost of the goods sold, giving the gross profit. The point to be borne in mind is that it is not the sales that determines gross income from a business, but rather the amount of gross profit. The question of gross income will be treated in more detail in a subsequent article. What should be here remembered is that all individuals who have a gross income of $5,000 or over, must file a return. Barbara LaMarr who is now appearing in "Sandra" her latest First National release. She is busily engaged in work on a new picture to be released soon. The rule is also laid down that, irrespective, of the amount of the gross incorrie, . if the net mcome of a single person is' $1,000 or over, he must file a return. No mention is made about any age limitation so that an infant is required to file a return if he has a net income of -his own of §1,000 or over, or a gross income of $5,000 or over. Where the infant is unable to make his own return, it must be filed by his guardian or any other person charged with his care. For practical purposes, it can therefore be said that the parent must file the return for a minor child who is unable to file his own return. It is noteworthy, in this connection, that returns are not required of infants, unless they have income on their own account froin their own property. The earnings from services of a child below statutory age, however, legally belong to the parents and must be reported in the parents' returns, unless the minor has been, what is technically called, emancipated. This, too, will be more fully discussed in a subsequent article. So far as a married man is concerned, if his net income is $2,500 or over, he must file a return, even though his gross income is less than $5,000. This provision changes the law that prevailed when 1923 returns were filed. Under that law, a return had to be made if the net income of a married individual was $2,000 or over. The difference in the laws is accounted for by the change in the exemption allowted married individuals. This will be explained in the next article. There is" another factor to consider about the returns of married persons. The husband and wife have a right to file either separate returns in which their income is stated separately, or joint returns in which their incomes are combined. When it is advisable to file a joint return, and when separate returns, will be made the subject of particular discussion at a later time. However, if is pertinent here to note that the husband and wife, though two distinct individuals, are regarded as one for the purpose of determining whether a return must be. filed. In other words, if the combined gross income of the husband and wife is $5,000, a joint or separate return must be filed. The same result is true where their combined net income is $2,500 or over. This covers the law so far as the returns of individuals are concerned. Now, as to the other taxpaj'ers. Although partnerships, as such, are not subject to tax because they are not regarded as an entity distinct from the partners wlio make up the partnership, every partnership is required to file a return shov.?ing its income and to whom that income is distributable. The partnership return is really in the nature of an information return, and supplies the Government with the basis for auditing the partners' individual returns, with respect to their income from the partnership. Every corporation (except those that are exempt, such as charitable institutions, etc.) must make a return, regardless of the amount of either the gross or the net income. In other -words, all corporations that are subject to the income tax law must file a. return, even though they need not in fact pay any tax. Estates and trusts are regarded somew^hat as single indi\ iduals and must file a return if their gross income is $5,000 or over, or their net income $1,000 or over. In addition to these returns there may be other supplementary returns, sometimes called information returns that have to be filed. For instance, employers are required to file returns showing all the employees to whom they paid $1000 or over during the year. The requirements as to these, however, may best be considered at another time. In the next article the subject of credits and exemptions will be considered, and also the requirements as to the place and the time for filing returns. QUESTIONS AND ANSWERS Q. About one year ago. two of my brothers who were in the sheep business were forced to sell and did not realize sufficient to meet their obligations. I had loaned them about $2,000 to try and tide them over. I have not, and will not receive anything on this loan. Please advise me whether or not this is a legitimate deduction to make on my income tax returns. — ^^C. F. B. A. If the $2,000 that you advanced was a pure loan and did not have the element of a gift, the loss is deductible by you. ORMISTON TO *M AN AGE CHAIN OF THEATRES Harry Ormiston, assistant publicity writer under Paul Gulick at Universal, and director of publicity for Century Comedies, has been engaged by a Florida chain of theatres to supervise the managing of them as well as handle all the advertising and publicity. Ormiston will leave within the next few days for Palm Beach where he will remain for several days to rest before going to Jacksonville to take over his new duties. If you are bored for something to do next summer you might organize a contest such as is shown in the picture above. It is from a ?cene in Producers Distributing Corporation's "The Girl On the Stairs" starring Patsy Ruth Miller.