The Fourth of July was traditionally celebrated as America´s birthday, but the idea of an annual day specifically celebrating the Flag is believed to have first originated in 1885. BJ Cigrand, a schoolteacher, arranged for the pupils in the Fredonia, Wisconsin Public School, District 6, to observe June 14 (the 108th anniversary of the official adoption of The Stars and Stripes) as ´Flag Birthday´.

Inspired by these three decades of state and local celebrations, Flag Day - the anniversary of the Flag Resolution of 1777 - was officially established by the Proclamation of President Woodrow Wilson on May 30th, 1916. While Flag Day was celebrated in various communities for years after Wilson´s proclamation, it was not until August 3rd, 1949, that President Truman signed an Act of Congress designating June 14th of each year as National Flag Day.

source: http://usflag.org/history/flagday.html

Guidelines for Display of the Flag

Public Law 94-344, known as the Federal Flag Code, contains rules for handling and displaying the U.S. flag. While the federal code contains no penalties for misusing the flag, states have their own flag codes and may impose penalties. The language of the federal code makes clear that the flag is a living symbol.

Traditional guidelines call for displaying the flag in public only from sunrise to sunset. However, the flag may be displayed at all times if it’s illuminated during darkness. The flag should not be subject to weather damage, so it should not be displayed during rain, snow and wind storms unless it is an all-weather flag.

It should be displayed often, but especially on national and state holidays and special occasions.

During the hoisting or lowering of the flag or when it passes in parade or review, Americans should stand at attention facing the flag and place their right hand over the heart. Uniformed military members render the military salute. Men not in uniform should remove any headdress and hold it with their right hand at their left shoulder, the hand resting over the heart. Those who are not U.S. citizens should stand at attention.

Out of respect for the U.S. flag, never:

• dip it for any person or thing, even though state flags, regimental colors and other flags may be dipped as a mark of honor.
• display it with the union down, except as a signal of distress.
• let the flag touch anything beneath it: ground, floor, water, merchandise.
• carry it horizontally, but always aloft.
• fasten or display it in a way that will permit it to be damaged or soiled.
• place anything on the flag, including letters, insignia, or designs of any kind.
• use it for holding anything.
• use it as wearing apparel, bedding or drapery. It should not be used on a costume or athletic uniform. However, a flag patch may be attached to the uniform of patriotic organizations, military personnel, police officers and firefighters.
• use the flag for advertising or promotion purposes or print it on paper napkins, boxes or anything else intended for temporary use and discard.

When the flag is worn out or otherwise no longer a fitting emblem for display, it should be destroyed in a dignified way, preferably by burning.  Note: Most American Legion Posts regularly conduct a dignified flag burning ceremony, often on Flag Day, June 14th. Many Cub Scout Packs, Boy Scout Troops, and Girl Scout Troops retire flags regularly as well. Contact your local American Legion Hall or Scout Troop to inquire about the availability of this service.

sources:  http://dva.state.wi.us/PA_MemorialDay.asp#flag and http://usflag.org/flagetiquette.html