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In 2020, Ace Corporation reports gross income of $200,000 (including $150,000 of profit from its operations...

In 2020, Ace Corporation reports gross income of $200,000 (including $150,000 of profit from its operations and $50,000 in dividends from less-than-20%-owned domestic corporations) and $230,000 of operating expenses.

A. What is Ace’s NOL for 2020

B. Assume that Ace expects 2021’s taxable income to be $20,000 and 2022’s taxable income to be $100,000, both before any NOL deduction in the carryover year. What NOL deductions can Ace expect to claim in 2021 and 2022

C. How would your answer to Part b change if, in addition to the 2020 NOL, Ace also had a $5,000 NOL carryover from a loss occurring before 2018?

Solutions

Expert Solution

A. Year of Reporting of Filing Returns
2020
Operating Income / Income from Business and Profession 150000
Income from Other Sources / Dividend 50000
Operating Losses: 230000
Hence Income from PGBP -80000
Applying General Rule fo Set off And Carry forward Principle
Hence Net Loss Reported in Tax Return is 30000, as Set off against Income from Other Sources
B. 2021 20000
2022 100000
Year Net O Income Deduction / Set off Carryforward
2021 20000 -30000 -10000
2022 100000 -10000 90000
C. Year Net O Income Deduction / Set off Carryforward
2021 20000 -30000 -15000
2022 100000 -15000 85000
Here, as per Taxation Principle carryforward is applicable for maximum period of 8 Years and if it is assumed that such loss incurred before 2018 and where in 2020 itself maximum period of carryover completed then such loss shall be debarred from Carryforward and no need to set ff agaisnt the same.

ekkarill92 answered 2 years ago
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