Class22 - DefTax2 - M351 Notes, Class 22, Taxes Day 1, pp....

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M351 Notes, Class 22, Taxes Day 1, pp. 978-984 Today’s topics: How do losses in the current year relate to prior taxes and future taxes? What information affects if we need an allowance related to future taxes? A. Loss carryback —when a company has a net operating loss on its tax return, it may carry back the loss to the two previous years and offset profits in those two previous years and receive refunds for taxes paid in those years. See the example beginning at the bottom of page 979 and continuing on the top half of page 980. Note the journal entry recognizing the loss carry back and the income statement presentation including the loss carryback. B. Loss carryforward —when a company has a net operating loss on its tax return, it may carry forward the loss up to 20 years to offset profits in those subsequent years and reduce or eliminate taxes in those years. Companies typically use the loss carryback first and then if current period net operating losses remain unmatched with previous profits, then the company will employ the carryforward provision. C.
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This note was uploaded on 12/04/2009 for the course MGMT 351 taught by Professor Staff during the Spring '08 term at Purdue University-West Lafayette.

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Class22 - DefTax2 - M351 Notes, Class 22, Taxes Day 1, pp....

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