Question

gAdams Inc began operating in 2015. The company lost money the first year but has been profitable ever since. The company’s taxable income (EBT) for its first five years is listed below. Each year the company’s corporate tax rate has been 35 percent. Year Taxable Income 2015 -$4 million 2016 1 million 2017 2 million 2018 3 million 2019 5 million Assume that the company has taken full advantage of the Tax Code’s carry-back, carryforward provisions and that the current provisions were applicable during these years. How much did the company pay in taxes in 2018 and 2019 respectively?

Answer 1

Answer:

                                                                               2018              2019

tax paid                                                                 $490000    $1750000

Explanation:

Tax carryforward provision has an 80% limit of losses written off in the current year provided the current year's profits are less than the loss.

tax paid in 2018                                                          remaining loss

loss offset in 2016 = $1mil*0.8 = $800000              $3200000

loss offset in 2017 = $2 mil * 0.8= $1600000          $1600000

taxable income 2018 = $3mil - $1600000= $1400000 * 35% = $490000

taxable income 2019 = $5 mil * 0.35= $1750000