February 3, 2013

Happy birthday to you, U.S. federal income tax

Submitted by John F. Beazle and Janie Biddix

— Feb. 3, 2013, marks the 100th birthday of the 16th Amendment which states, “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

The 16th Amendment was ratified on Feb. 3, 1913.

The income tax 100 years ago was 1 percent on net income over $3,000. That would equate to more than $67,000 today. If you were a high income earner over $500,000 (today more than $11 million) you would pay an “additional or super tax” of 6 percent.

Many changes have been made to Title 26 of the U.S. Code. Title 26 is the Internal Revenue Code where all the tax laws reside. The “tax code” is more than 70,000 pages and has nearly doubled in the past 15 years.  

The tax rates have been adjusted several times over the past 100 years. The highest tax rate in history was 94 percent for incomes over $200,000 in tax years 1944 and 1945. For tax year 2013, tax rates range from 10 percent to 39.6 percent.

The 1913 taxes and tax return were significantly less complicated than what we have today. In 1913 there was one type of return which included individuals and businesses. Today there are seven returns for individuals, businesses, estates and nonprofits, not to mention payroll returns. In 1913, Earned Income Tax Credit, Child Tax Credit, Additional Child Tax Credit, Foreign Earned Tax Credit, Child and Dependent Tax Credit, etc., did not exist. There were six “General Deductions” which included:

1. Necessary expenses actually paid in carrying on business (but did not include personal, living or family expenses).

2. All interest paid within the year on personal indebtedness of taxpayer.

3. All national, state, county, school and municipal taxes paid within the year.

4. Losses actually sustained during the year incurred in trade or arising from fires, storms or shipwreck and not compensated for by insurance or otherwise.

5. Debts due which have been actually ascertained to be worthless and which have been charged off within the year.

6.    Amounts representing a reasonable allowance for the exhaustion, wear and tear of property arising out of the use or employment in the business.

Today we have many more adjustments, credits, deductions and exemptions that are available.

The deadline to file the tax return has also changed from March 1 for tax year 1913 to March 15 for tax year 1918 to April 15 for tax year 1955.

For tax year 2011 there were more than 140 million tax returns filed with nearly 100 million taxpayers filling electronically (e-file). Filling electronically is the safest, fastest and easiest way for taxpayers to submit their tax returns.

John F. Beazle and Janie Biddix are co-founders of Advanced Tax Specialists Inc. with offices in Calhoun, Dalton and Ringgold.