acc 311 paper - Hanrahan 1 Corporate income taxes hugely...

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Hanrahan 1 Corporate income taxes hugely contribute to the economic growth of America. The internal revenue service has numerous codes and regulations regarding the treatment of income taxes in regards to net operating income. Individuals, small businesses, partnerships and all types of corporations are required by the Internal Revenue Service to pay taxes on their net income every year. Yet the issue arises of what exactly to do when a company does not build any profit. How does a company report income taxes if they lose money; or generate a net operating loss? A net operating loss is a negative taxable income. It occurs when tax deductable expenses exceed the taxable revenues When a company generates a net operating loss, income taxes are handled in a rather different manner. When there is a net operating loss, the government cannot implement a tax rate on the negative income. Instead there is a somewhat beneficial approach to net operating losses that businesses can take advantage of. IRC 172 allows for carryforwards and carrybacks of a net operating loss (Harrison 2010). The carryforward and carryback rules are widely used by companies’ nationwide. Both of these provisions help even matters out within the business cycle because if companies happen to experience a net operating loss, they may offset taxable income with the loss. The carryback approach is elected when the corporation reported a net operating income in either of the previous two years (Spiceland, Sepe, & Nelson, 2011). Although depending on the state, beginning with tax year 2008, eligible small businesses may elect a carryback for up five of the past years in which they had a net operating
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This note was uploaded on 04/05/2011 for the course ACC 310 taught by Professor Drogt during the Fall '10 term at Grand Valley State.

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acc 311 paper - Hanrahan 1 Corporate income taxes hugely...

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