"03-08M351 Notes-Class 22 Taxes day 2-1

"03-08M351 Notes-Class 22 Taxes day 2-1 - M351...

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M351 Notes, Class 22, Taxes Day 1, pp. 1006-1011 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 top of page 1007. 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. A loss carryback example. Assume ABC company has the following data: Taxable Tax Year Income Rate 2006 100,000 40% 2007 60,000 30 2008 (130,000)
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"03-08M351 Notes-Class 22 Taxes day 2-1 - M351...

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