Chapter 7 11-12

Chapter 7 11-12 - ACCT 403 CHAPTER 7 FALL 2011 LOSSES I....

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
ACCT 403 CHAPTER 7 – FALL 2011 LOSSES I. Net Operating Loss Deduction A. General Overview. 1. If current deductions exceed income, taxpayer may be able to deduct the excess in another year if a net operating loss deduction (NOL) is generated. 2. Purpose of such loss is to mitigate inequities caused by cyclical businesses and the annual accounting constraint. a. Example 4, page 4. 3. NOLs generally will arise from one of three types of losses: a. Business losses arising from an unincorporated business which is a sole proprietorship [Schedule C]. 1. Example 3, page 4. b. Business losses arising from a partnership or S corporation. c. Casualty or theft losses [regardless of whether they are personal or business]. 4. The NOL deduction may be carried back to two preceding years [ in order of least recency ] or carried forward up to 20 years. a. The NOL deduction is a deduction for AGI in the carryback or carryover year(s). b. The deduction is used in the carryback or carryover year to the extent allowed and the balance is then carried forward until used up. 1. Examples 5-6, pages 4-5. c. An amended return is filed if the NOL is carried back. 1. The deduction is a deduction for AGI and thus reduces taxable income and generally results in a refund of taxes paid in the carryback year. 5. May elect to relinquish right to carryback the loss. Must make such election by the due date of the tax return in which the loss arose. a. In deciding whether to forgo carryback an NOL, the taxpayer needs to look at the prior two year’s tax rates, expected tax rates in the future, and time value of money (NPV). b. Example 7, page 5. c. Not responsible for calculating the NOL deduction.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 II. Transaction Losses A. Trade or business losses. 1. If schedule C, the loss is deducted against other income on Form 1040. 2. If partnership or S Corporation, the loss is deducted on Schedule E (page 2) and deducted against other income on Form 1040. B. Business and Personal Casualty Losses 1. Although it applies to both business and personal casualty losses, the amount of the deduction will be lower if it is personal (see below). a. For some reason, the author discusses business casualty losses (pages 19-22) separately from personal casualty losses (pages 26-28 ). 2. Losses are deductible arising from: a. Fire. b. Storm. c. Shipwreck. d. Or other casualty or theft. 3. For other casualty, rulings have allowed loss deductions arising from sonic booms, earth slides, and frost damage but did not losses from broken vase due to pet cat, termite damage, Dutch Elm disease, and deterioration of equipment from rust. a.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/05/2011 for the course ACCT 403 taught by Professor White during the Fall '11 term at South Carolina.

Page1 / 6

Chapter 7 11-12 - ACCT 403 CHAPTER 7 FALL 2011 LOSSES I....

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online