18 



The Florists' Review 



Fbbbdary 10, 1921 



brush will be shorter-lived than one in 

 a dry climate and carefully kept in the 

 best condition by its owner. Each flo- 

 rist, considering his own case, must 

 work out what he considers "a reason- 

 able allowance." He should remember, 

 of course, that if he finds in later years 

 that his greenhouses will not last as 

 long as he calculated, he is entitled to 

 a readjustment. He should likewise 

 remember that if he calculates the life 

 of the houses as shorter than it really 

 proves to be, the tax officials are likely 

 to -demand a readjustment to Uncle 

 Sam's advantage. 



Notewerthy Points. 



There are, in this connection, one or 

 two points worth noting. The regula- 

 tions state that the aggregate of the 

 sums deducted for depreciation at the 

 end of the life of k greenhouse should 

 be its cost, "or its value as of March 1, 

 1913." Thus, if houses were 10 years 

 old when the income tax was first levied 

 and were expected to last ten years 

 longer, a value might have been fixed 

 as of March 1, 1913, and one-tenth of 

 the amount deducted during the ten 

 succeeding years. Inasmuch as one 

 would .'xpect the value of 10-year-old 

 houses to be one-half of the original in 

 such a case, the amount of deductioTi 

 would be the same as though it were 

 figured as five i)er cent of the original 

 cost. 



But the situation is somewhat differ- 

 ent in case greenhouses have been pur- 

 chased in the last two or three years. 

 Suppose A built a range of greenhouses 

 at a cost of $40,000 in 1910, and, calcu- 

 lating their lifetime as twenty years, 

 deducted $2,000 each year as deprecia- 

 tion in his income tax return while he 

 owned them. Last year he sold them 

 for $30,000 to B, who, on the assumption 

 that the greenhouses will last him ten 

 years, is entitled to charge off $3,000 a 

 year as depreciation. On a transaction 

 of this kind, by the way, A will have to 

 pay taxes on $10,000 of the sale price 

 of the houses as income, which, how- 

 ever, has nothing to do with depre- 

 ciation. 



On Other Eciuipment. 



Depreciation applies to all other 

 equipment of retail florists or growers 

 on the same basis as that outlined for 

 greenhouse structures — a reasonable al- 

 lowance based upon probable period of 

 use. Depreciation of a delivery auto- 

 mobile depends upon the make of car 

 and the use given it; some cuts last but 

 a short time, some trucks survive many 

 seasons. Heating equipment may need 

 to be replaced several times in tlie life- 

 time of a greenhouse and the deprecia- 

 tion allowance should be accordingly 

 higher. Office and store equipment, 

 such as furniture, refrigerators, desks 

 and cash register, last many years, and 

 the percentage of depreciation is pro- 

 portionately low. Here, again, no one 

 can give a percent age applicable to all 

 cases. The florist who calculates rea- 

 sonably and fairly will not go far 

 wrong, and if his return bears no evi- 

 dence of an attempt at sharp figuring, 

 he will not need to fear the results of 

 an audit by income tax officials. 



Inventory Not Necessary. 



As perplexing to florists as the ques- 

 tion of depreciation has been that of 

 inventory, both of which were presented 

 to the National Flower Growers' Asso- 

 ciation meeting at Washington as ones 



to be cleared up by that body's action. 

 The matter of inventory, so far as grow- 

 ers are concerned, is easily disposed of. 

 Growers of plants <n greenhouses, like 

 growers outdoors, are considered as be- 

 longing in the agricultural group of in- 

 dustries. In filing their returns, there- 

 fore, they are to be guided by the pro- 

 visions relating to farmers rather than 

 those relating to manufacturers. Farm- 

 ers are not required to inventory their 

 growing crops, because they have no 

 value until they are harvested. By the 

 same principle, florists need not inven- 

 tory the plants growing in their green- 

 houses, because not the plants in proc- 

 ess of growth, but the flowers they 

 produce, or the finished plants, as may 

 be, are the marketable product. If 

 florists included their plants in the tax 

 inventories, they would find it necessary 

 to make provision for plants that might 

 die or become diseased or be destroyed 

 before they could be marketed. Kecog- 

 nizing the hazardous nature of such 

 properties of fioriculturists, as well as 

 other agriculturists, the income tax reg- 



Tbe Editor is pleased when 

 a Reader presents bis ideas 

 on any subject treated in 



As experience is tbe best 

 teacher, so do we learn 

 fastest by an exchange of 

 experiences. Many valuable 

 points are brought out by 

 discussion. 



Good penmanship, spelling and 

 Krammar, though desirable, are not 

 necessary. Write ss you would talk 

 when doing your best. 



WE SHALL BE GLAD 

 TO HEAR FROM YOU 



Illations free them from making inven- 

 tory of growing stock. 



Crop Losses Not Deductible. 



By the same principle losses of grow- 

 ing crops are not deductible, since they 

 have not previously added to the own- 

 er's capital or income. For instance, if 

 a hail storm breaks the glass and de- 

 stroys the crops in a greenhouse, the 

 cost of the glass is deductible under the 

 liead of "losses of property arising 

 from fires, storms, shipwreck, or other 

 casualty, or from theft, and not com- 

 pensnted for by insurance or other- 

 wise," but the cost of the plants is not 

 deductible. When the florist buys 

 plants, he charges them to operating 

 expense and if lie is compelled to buy 

 them twice in a season, his expenses are 

 thereby increased, so tliat lie need not, 

 to estimate his income accurately, 

 charge off as a loss those which have 

 been destroyed. 



Charging to Expense. 



There is no fine line definitely drawn 

 between what is properly chargeable to 

 expense and what is an investment of 

 capital. It is easy to see that a new 

 greenhouse added to one's range is an 

 investment of capital, whereas a new 

 coat of paint is an item of expense. Just 



where to draw the line in renewing heat- 

 ing pipes and benches is not so simple, 

 but it is safe to say that such replace- 

 ments are chargeable to expense, except 

 ''When they are made on an extensive 

 scale. A few lights of glass broken in 

 the regular course would simply be 

 charged to expense. But alterations on 

 a considerable scale calculated to 

 lengthen the life of the property would 

 be properly an investment of capital. 

 Indeed, the deciding point is whether the 

 expenditure increases the value of the 

 property or augments its lifetime to a 

 considerable extent, or not. Tools and 

 machinery that are of a permanent 

 character are a capital investment, but 

 hand tools and similar short-lived equip- 

 ment are charged to expense. 



According to the revenue act, among 

 the items to be treated as business ex- 

 penses are material, labor, supplies and 

 repairs in the case of a grower, while a 

 retailer would include his purchases of 

 goods bought for resale. Other items 

 that may be included as business ex- 

 penses are reasonable compensation for 

 the services of officials and employees, 

 advertising and other selling expenses, 

 together with insurance premiums 

 against fire, storm, theft, accident or 

 other similar losses, and rental for the 

 use of business property. 



A taxpayer may deduct the necessary 

 expenses paid in carrying on his business 

 from his gross income from whatever 

 source. In computing net income upon 

 which the tax is assessed, a deduction 

 for business expense or a disbursement 

 or charge must have certain qualities in 

 order to be allowed. It must relate to a 

 trade, business profession or vocation, 

 "carried on" by the taxpayer in which 

 he has invested time and money for the 

 purpose of a livelihood or profit. A busi- 

 ness is being carried on by its owner, 

 oven though all its activities may be 

 conducted by employees. 



Deductions for Losses. 



Numerous errors relative to claims for 

 deductions for losses have, been discov- 

 ered in returns of prior years. To be 

 allowed, deductions for losses must be 

 confined to the following classes: Losses 

 sustained in trade or business; losses 

 sustained in transactiens entered into 

 for profit, though not connected with a 

 trade or business; losses sustained of 

 property not connected with trade or 

 business if arising from fires, shipwreck, 

 storms, or other casualty, or from theft. 

 To the CJttent any of the above losses are 

 compensated for by insurance or other- 

 wise, they are not deductible. 



A common loss of a person engaged in 

 business is the destruction or theft of 

 merchandise. A retail florist who uses 

 inventories to ascertain his profit should 

 not make on his books entries for any of 

 his stork in trade that is destroyed or 

 stolen, for the reason that such loss will 

 be reflected in his closing inventory. If 

 his books are kept on a cash basis which 

 properly shows his correct ])rofits, he 

 may deduct specifically the amount of 

 his loss. In either event, if he receives 

 insurance for such losses he must include 

 in his gross income the amount of such 

 insurance. 



Loss of cash by burglary or embezzle- 

 ment may be deducted by an entry 

 debiting profit and loss and crediting 

 cash. The amount of such loss should be 

 reduced by the amount of insurance cov- 

 ering it and by the reasonable value of 

 any claim against the embezzler or his 

 sureties which have an ascertainable 



