The

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...

Revenue Act of 1942, Pub. L. 753, Ch. 619, 56 Stat. 798 (Oct. 21, 1942), increased individual income tax rates, increased corporate tax rates (top rate rose from 31% to 40%), and reduced the personal exemption amount from $1,500 to $1,200 (married couples). The exemption amount for each dependent was reduced from $400 to $350. A 5% Victory tax on all individual incomes over $624 was created, with postwar credit. The 35-60% graduated rate schedule for excess profits tax was replaced with a flat 90% rate. The Act also created deductions for medical expenses.

Expenses for the production of income

Section 121 of the Revenue Act of 1942 enacted section 23(a)(2) of the Internal Revenue Code of 1939. That provision, effective retroactively for tax years that began after December 31, 1938, allowed a deduction, for U.S. federal income tax purposes, for

expense An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition is a ...

s incurred in

investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...

activities (activities for the production of income), even if such activities are not conducted in connection with a trade or business.See generally ''Bingham's Trust v. Commissioner'', 325 U.S. 365, 65 S. Ct. 1232, 45-2 U.S. Tax Cas. (CCH) paragr. 9327 (1945). The current version of section 23(a)(2) is section 212 of the

Internal Revenue Code The Internal Revenue Code (IRC), formally the Internal Revenue Code of 1986, is the domestic portion of federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 ...

of 1986.

Tax on corporations

Normal tax

A normal tax was levied on the

net income In business and accounting, net income (also total comprehensive income, net earnings, net profit, bottom line, sales profit, or credit sales) is an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest, a ...

of corporations as shown in the following table:

Surtax on corporations

A surtax was levied on the corporation surtax net income (net income less allowances and exemptions) of corporations as shown in the following table:

Tax on individuals

A normal tax and a surtax were levied against the net income of individuals as shown in the following table: There was an exemption of $500 for single filers, $1,200 for married couples and heads of family, and $350 for each dependent under 18.

Notes

{{ssusa 1942 in American law United States federal taxation legislation