Operating Loss Carryback and Carryforward
(1) A net operating loss carryback is applied to the income of the two preceding years in reverse order, beginning with the second year and moving to the first year. (Stice, 2014, P.16-3a).
Year Taxable and Pretax Financial Income Income Tax Rate Income Tax Paid 2013 $33,100 40% $13,240 2014 22,500 34% 7,650 Amount of income tax refund due Aruban = $20,890 (2) Operating loss (2015) $94,300 Less: Carryback to year 2013 33,100 Less: Carryback to year 2014 22,500 Operating loss carryforward = $38,700 If the operating loss exceeds income for the two preceding years, the remaining unused loss applied to income earned over next 20 years as a net operating (NOL) carryforward. Assuming the enacted tax rate for future years is 30%, the potential tax benefit from the carryforward is calculated as follow: …show more content…
Deferred Tax Asset-NOL Carryforward 11,610 Income Tax Benefit from NOL Carryforward. 11,610 The amount of $11,610 would be reported on the balance sheet as a current asset if it is expected to be realized in 2016. Any portion that is expected to be realized after the year 2016 would be classified as noncurrent. Also, the $11,610 tax benefit amount is reported to the 2015 income statement as a reduction in operating loss. (Stice, 2014, p.16-3b).
3 (a) Assuming the loss in 2015 was $39,000. Year Taxable and Pretax Financial Income Income Tax Rate Income Tax Paid 2013 $33,100 40% $13,240 2014 5,900 34%
(1) A net operating loss carryback is applied to the income of the two preceding years in reverse order, beginning with the second year and moving to the first year. (Stice, 2014, P.16-3a).
Year Taxable and Pretax Financial Income Income Tax Rate Income Tax Paid 2013 $33,100 40% $13,240 2014 22,500 34% 7,650 Amount of income tax refund due Aruban = $20,890 (2) Operating loss (2015) $94,300 Less: Carryback to year 2013 33,100 Less: Carryback to year 2014 22,500 Operating loss carryforward = $38,700 If the operating loss exceeds income for the two preceding years, the remaining unused loss applied to income earned over next 20 years as a net operating (NOL) carryforward. Assuming the enacted tax rate for future years is 30%, the potential tax benefit from the carryforward is calculated as follow: …show more content…
Deferred Tax Asset-NOL Carryforward 11,610 Income Tax Benefit from NOL Carryforward. 11,610 The amount of $11,610 would be reported on the balance sheet as a current asset if it is expected to be realized in 2016. Any portion that is expected to be realized after the year 2016 would be classified as noncurrent. Also, the $11,610 tax benefit amount is reported to the 2015 income statement as a reduction in operating loss. (Stice, 2014, p.16-3b).
3 (a) Assuming the loss in 2015 was $39,000. Year Taxable and Pretax Financial Income Income Tax Rate Income Tax Paid 2013 $33,100 40% $13,240 2014 5,900 34%