In its first year of existence (year 1), SCC corporation (a C corporation) reported a loss...

In its first year of existence (year 1), SCC corporation (a C corporation) reported a loss for tax purposes of $30,000. How much tax will SCC pay in year 2 if it reports taxable income from operations of $20,000 before considering loss carryovers under the following assumptions? (New Corporate income tax rate has been mentioned as "21% on all taxable income" as per the recent change. Leave no answer blank. Enter zero if applicable.)

b. Year 1 is 2018. What is SCC Tax Liability in Year 2?

Expert Solution

b. The tax liability of SCC corporation in year 2 is as follows:

Taxable income from operations $ 20,000

less 80% of taxable income ($ 16,000)

Taxable income for year 2 $ 4,000

Tax liability for year 2 at the rate of 21% $840

Before 2018, the loss from the previous year could be deducted as much as the income of the current year. However, after 2018, only 80% of the taxable income can be deducted, being $16,000.

The balance $14,000 ($30,000 - $16,000) can be carried forward and deducted in the future years subject to the limitation of 80%.

ekkarill92 answered 2 years ago

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