Explain how a company may utilize a net capital loss for tax purposes. After this is...

Explain how a company may utilize a net capital loss for tax purposes.

After this is explained, give an example you’ve seen or read.

Provide your reference.

Solutions

Expert Solution

A company may utilize a net capital loss to reduce its future years profits with that loss. If a company make a loss in any financial year then that loss can be carry forward by that company in their books of accounts and whenever company makes a profit in any subsequent year then that carried forwarded loss can be adjusted against that profit and accordingly tax liability can be reduced for that profitable year.

For example let suppose a company make a loss of $750000 in year 2017, and makes a profit of $300000 for next three years in each year. Now company would carry forward its loss and their tax liability in the next three years will be as follows (Assume tax rate is 35%)-

2018 - 300000*35% = 105000 - 105000 = 0

2019 - 300000*35% = 105000 - 105000 = 0

2020 - 300000*35% = 105000 - 52500 = 52500

Notes

Tax on loss = 750000*35% = 262500

Reference - https://www.irs.gov/publications/p536#en_US_2018_publink1000177389

jeff jeffy answered 2 days ago

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