138 CALIFORNIA AND WESTERN MEDICINE Vol. XXXIV, No. 2 MEDICO-LEGAL application must contain a full recital of the causes for the delay. Failure to make a return may subject the taxpayer to a penalty of 25 per cent of the amount of the tax due. A COUNTY SOCIETY EXPULSION The normal rate of tax on individual citizens or resi- COMPLICATION dents of the United States, under the Revenue Act of 1928, is 1.5 per cent on the first $4000 of net income in On a Suit for Slander.-The following interesting excess of the exemptions and credits, 3 per cent on the next $4000, and 5 per cent on the remainder. news items appeared in the daily press, as coming over the Associated. Press wires. Some members who WHO MUST FILE RETURNS perused the revised constitution and by-laws of the 1. Returns must be filed by every person having a California Medical Association may have wondered gross income of $5000 or more, regardless of the amount why the sections dealing with complaints of an ethical of his net incomne on his marital status. If the aggregate nature against members of component county socie- gross income of husband and wife. living together, was ties were so explicitly drawn. That was done in ani $5000 or more, they must file a joint return or separate effort to prevent the unpleasant consequences which returns, regardless of the amounts of their joint or indi- vidual net incomes. can sometimes result if accepted and fundamental 2. If gross income was less than $5000, returns legafl procedures are nlot properly observed when a be filed (a) by every unmarried person, and by must physician is on trial before his fellows on a charge of person married but not living with husband or every wife, unethical conduct. The editor does not know the whose net income was $1500 or more, and (b) by every details of the Spokane case. The press dispatches are married person, living with husband or wife, whose net income was $3500 or more. If the aggregate net income here reprinted so that all county society members of husband and wife, living together, was $3500 or more, and officers who have or who assume responsibilities each may inake a return or both unite in a joint return. in these matters may be reminded to be alert to the If the marital status of a taxpayer changed during the legal and other phases of such questions and problems tax year, the amount of income necessary to bring him in ethics, in case such problems in ethics should come within the class required to make returns should be as- certained by inquiry of the local collector of internal before them. All component county societies are obli- revenue. gated to observe the requirements laid down by the As a matter of courtesy only, blanks for returns are parent state association. County society by-laws sent to taxpayers by the collectors of internal revenue, which do not include the safeguards laid down in the without request. Failure to receive a blank does not ex- state association constitution and by-laws should be cuse anyone from making a return; the taxpayer should obtain one from the local collector of internal revenue. amended to conform therewith. The following discussion covers matters relating spe- The news dispatches follow: cifically to the physician. Full information questions of general interest may be obtainedconcerning from the Excerpt from San Francisco Examiner, January 4, 1931: official return blank or from the collectors of internal revenue. Doctor Wins $30,000 Damages for Ouster GROSS AND NET INCOMES-WHAT THEY ARE Spokane (Wash.), January 4.-(AP).-Dr. W. W. Gross Income.-A physician's gross income is the total Robinson, who was expelled from the Spokane amount of money received by him during the year from County Medical Association, was awarded $30,000 to- professional work, regardless of the time when the ser- vices were rendered for which the money was paid, plus night by a jury which heard his suit against ten such money as he has received as profits from invest- Spokane physicians whom he accused of conspiracy ments and speculation, and as compensation and profits to slander. from other sources. f f I Net Income.-Certain professional expenses and the ex- penses of carrying on any enterprise in which the phy- Excerpt from San Francisco Call, January 6, 1913: sician may be engaged for gain may be subtracted as "deductions' from the gross income, to determine the Doctor Wins Suit for $30,000 Aimed at net income on which the tax is to be paid. An "exemp- Other Medicos tion" is allowed, the amount depending on the taxpayer's marital status during the tax year, as stated before. Spokane (Wash), January 6, (AP).-Ten doctors These matters are fully covered in the instructions on ordered to pay $30,000 to Dr. W. W. Robinson for the tax return blanks. "slandering and humiliating" him by expelling him Earned Income.-In view of the credit of 25 per cent allowed on earned net income, the -physician should state from the Spokane County Medical Society will appeal accurately the amount of such income as distinguished the case, it was made known today by their counsel. from his receipts from other sources. Earned income A jury verdict gave the award to Robinson, who means professional fees, salaries and wages received as had sued for $60,000. He has a libel suit for $30,000 compensation for personal services rendered. Fromn this, in the computation of the tax, must be subtracted cer- pending against Dr. Charles S. Ward and Dr. Carroll tain "earned income deductions." The difference is the Smith for publishing charges against Robinson in a "earned net income." medical journal. A physician may include as "earned" income mnoney The case began with a malpractice suit, Robinson paid by patients who were looked after in part by his assistants. In order to do so, however, the patients on contended, in which he testified against a doctor who whose account the money was paid mnust have been in performed improperly an operation on a girl. Robin- fact the patients of *the p)hysician-taxpayer and have son said this "set the doctors against him." looked to him as responsible for the services performed. Moreover, the services must have been performed under the physician-taxpayer's supervision. The first $5000 of an individual's net income from all INCOME TAX REPORTS sources may be claimed, without proof. to be earned net income, whether it was or was not in fact earned within the meaning set forth in the preceding paragraph. Net OF PHYSICIANS income in excess of $5000 may be claimed as earned if it in fact comes within that category. However, a tax- payer may not clain, as earned, net income in excess of Income Tax Reports.-Income tax reports are $30,000. something which must be made out by the great ma- The conditions relating to the computation of the tax on earned income are too elaborate to be stated here. In jority of members of the Californiia, Nevada, and ease of doubt, physicians should consult collectors of Utah Medical Associations. Inasmuch as exemptions internal revenue. allowed by the federal government are of a somewhat technical nature, and because mistakes are apt to DEDUCTIONS FOR PROFESSIONAL EXPENSES cause financial loss, it seems proper to again print a A physician is entitled to deduct all current expenses digest of the general rulings which apply to physician necessary in carrying on his practice. The following citizens. statement shows what such deductible expenses are and how they are to be computed: The taxpayer who is required to nmake a return must do so on or before March 15, unless an extension of time Office Rent.-Office rent is deductible. If a physician for filing the return has been granted. For cause shown, rents an office for professional purposes alone, the entire the collector of internial revenue for the district in which rent may be deducted. If he rents a building or apart- the taxpayer files his return may grant such an exten- ment for use as a residence as well as for office purposes, sion, on application filed with him by the taxpayer. This he may deduct a part of the rental fairly proportionate February, 1931 MISCELLANY 139 to the amount of space used for professional purposes. may be deducted. A physician doing an exclusive office If the physician occasionally sees a patient in his dwell- practice and using his car merely to go to and from his ing house or apartment, he may not, however, deduct office cannot deduct depreciation or operating expenses; any part of the rent of such house or apartment as pro- he is regarded as using his car for his personal conve- fessional expense; to entitle him to such a deduction he nience and not as a means of gaining a livelihood. must have an office there, with regular office hours. If What has been said with respect to automobiles applies a physician owns the building in which his office is with equal force to horses and vehicles and the equip- located, he cannot charge himself with "rent" and de- ment incident to their use. duct the amount so charged. Office Maintenance.-Expenditures for office mainte- MISCELLANEOUS nance, as for heating, lighting, telephone service and the services of attendants, are deductible. Laboratory Expenses.-The deductibility of the expenses of establishing and maintaining laboratories is deter- Supplies.-Payments for supplies for professional use mined by the same principles that determine the de- are deductible. Supplies may be fairly described as arti- ductibility of other corresponding professional expenses. cles consumed in the using; for instance, dressings, clini- Laboratory rental and the expenses of laboratory equip- cal thermometers, drugs and chemicals. Professional ment and supplies and of laboratory assistants are de- journals may be classitied as supplies, and the subscrip- ductible when under corresponding circumstances they tion price deducted. Amounts currently expended for would be deductible if they related to a physician's office. books, furniture and professional instruments and equip- Losses by Fire, etc.-Loss of and damage to a phy- ment, "the useful life of which is short," may be de- sician's equipment by fire, theft or other cause, not com- ducted; but if such articles have a more or less perma- pensated by insurance or otherwise recoverable, may be nent value, their purchase price is a capital expenditure and is not deductible. computed as a business expense, and is deductible, pro- vided evidence of such loss or damage can be produced. Equipment.-Equipment conmprises property of more or Such loss or damage is deductible, however, only to the less permanent value. It may ultimiiately be used up, extent to which it has not been made good by repair and deteriorate or become obsolete, but it is not in thie ordi- the cost of repair claimed as a deduction. nary sense of the word "consumed in the using"; rather, Insurance Premiums. - Premiums paid for insurance it wears out. against professional losses are deductible. This includes Payments for equipment or nonexpendable property for insurance against damages for alleged malpractice, professional use cannot be deducted. As property of this against liability for injuries by a physician's automobile class niay be named automobiles, office furniture, inedi- while in use for professional purposes, and against loss cal, surgical and laboratory equipment of petiinanent from theft of professional equipnment, and damage to or value, and instruments and appliances constituting a loss of professional equipmnent by fire or otherwise. part of the physician's professional outnit and to be used Under professional equipmiient is to be included any auto- over a considerable period of time. Books of more or mobile belonging to the physician and used for strictly less permanent value are regarded as equipment, and the professional purposes. purcnase price is therefore not deductible. Expense in Defending Malpractice Suits.-Expenses in- Although payments for equipment or nonexpendable curred in the defense of a suit for malpractice are de- articles cannot be deducted, yet froni year to year there ductible as business expense. Expenses incurred in the may be charged off against them reasonable amounts as defense of a criminal action, however, are not deductible. depreciation. The amounts so charged off should be Sale of Spectacles.-Oculists who furnish spectacles, sufficient only to cover the lessened vaiue of such prop- etc., may charge as income money received from such erty through obsolescence, .oi dinary wear and tear, or sales and deduct as an expense the cost of the article accidental injury. If improvement to oftset obsolescence sold. Entries on the physician's account books should in and wear and tear or injury has been made, and deduc- such cases show charges for services separate and apart tion for the cost claimed elsewhere in the reLurn, ciaim fromii charges for spectacles, etc.-Journal of the Ameri- should not be made for depreciation. can Medical Association, January 10, 1931. A hard and fast rule cannot be laid down as to the amount deductible each year as depreciation. Every- * * * thing depends on the nature and extent of the proper.y and on the use to which it is put. Five per cent a year has been suggested as a fair amount for depreciation on Recent Decision on Community Property Reports. an ordinary medical library. Depreciation on an auto- A recent decision by the Supreme Court of the mobile would obviously be imuchi greater. The proper United States on California community tax reports allowance for depreciation of any property is that amount which should be set aside for the tax year in may be of interest, in connection with the above. The accordance with a reasonably consistent plan, not neces- clipping is from the Los Angeles Herald. sarily at a uniform rate, whereby the aggregate of the "San Francisco, January 19.- (AP).-The Supreme amounts so set aside, plus the salvage value, will at the Court at Washington today handed down a decision per- end of the useful life of the property in the business mitting husbands and wives in California to flle separate equal the purchase price of the property or, if purchased income tax returns. Attorneys for the Bureau of In- before March 1913, its estimated value as of that date or ternal Revenue here said, however, -the decision would its original cost, whichever may be the greater. The be of little or no beneflt to any couple earning less than physician must in good faith use his best judgment and $10,000 a year, net combined income, after exemptions. make such allowance for depreciation as the facts justify. Physicians who, from year to year, claim deductions for "There will be some minor benefits to taxpayers who depreciation on nonexpendable property will do well to have combined net incomes of $4000 a year or more, it make annual inventories, as of January 1, each year. was said, but those earning less will be in no way affected by today's decision. Medical Dues.-Dues paid to societies of a strictly pro- fessional character are deductible. Dues paid to social "The normal income tax is graduated as follows: 1% organizations, even though their membership is limited per cent on the first $4000 after deduction of exemptions; to physicians, are personal expenses and not deductible. 3 per cent on the next $4000; 5 per cent on all over $8000. The surtax begins at $10,000 and is levied in addition to Postgraduate Study.-The Commissioner of Internal the normal income tax. It is graduated from 1 per cent Revenue holds that the expense of postgraduate study is on incomes from $10,000 to $15,000, up to 20 per cent on not deductible. incomes of $200,000 and more. Traveling Expenses. Traveling expenses, including - "As the taxable income of a married man earning up amounts paid for transportation, meals and lodging, to $7500 would be taxed only at 1% per cent, he would necessarily incurred in professional visits to patients and gain nothing by submitting a divided return. in attending medical meetings for a professional purpose, are deductible. "For married men with incomes of $10,000, however, AUTOMOBILES the situation would be this: Payment for an automobile is a payment for perma- OLD LAW nent equipment, and is not deductible. The cost of oper- "As a married man he is entitled to an exemption of ation and repair, and loss through depreciation, are de- ductible. The cost of operation and repair includes the $3500, and would thus have a taxable income of $6500. Of this sum, $4000 is taxable at 11/2 per cent, or $60, and cost of gasoline, oil, tires, insurance, repairs, garage the remaining $2500 at 3 per cent, or $75. rental (when the garage is not owned by the physician), From this total tax of $135, he would be entitled to an "earned in- chauffeurs' wages, etc. come credit" of $5.62, leaving his tax payment $129.38. Deductive loss through depreciation is the actual diminution in value resulting from obsolescence and use, NEW LAW and from accidental injury against which the physician is not insured. If depreciation is computed on the basis "The man and wife would file separate returns of of the average loss during a series of years, the series $5000 each and each would deduct half of the total ex- must extend over the entire estimated life of the car, not emption of $3500, or $1750 each. This would leave each merely over the period in which the car is in the posses- with a taxable income of $3250 on which each would pay sion of the present taxpayer. a tax of $43.13, or a total of $86.26, as compared with If the automobile is used for professional and also for $129.38 for the undivided return. personal purposes-as when used by the physician for "In the case of a man with an income of $15,000, the recreation, or used by his family-only so much of the saving in taxes would be $135.62, and the income would expense as arises out of the use for professional purposes escape the surtax altogeither. "