an NOL has the potential to lower income and reduce taxes
When the business deductions of a taxpayer exceed the gross income from the business, the difference is accounted for as net operating loss (NOL).
An NOL can be carried over or carried forward to lower the income and reduce taxes for the taxpayer.
Therefore, the correct answer is:
An NOL has the potential to lower income and reduce taxes for the taxpayer for the carryover or carryforward year.
An NOL has the potential to generate extra revenue for the taxpayer:
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Exercise 7-31 (Algorithmic) (LO. 7) Emily, who is single, sustains an NOL of $17,880 in 2020. The loss is carried forward to 2021. For 2021, Emily' income tax information before taking into account the 2020 NOL is as follows: Adjusted gross income $89,400 Itemized deductions*: Medical ($10,728 - (10% x $89,400)] $1,788 Taxes 13,410 Interest expense on home mortgage 26,820 (42,018) Taxable income $47,382 * The 2020 single standard deduction is $12,400; Emily's itemized deductions will exceed the 2021 single...
E19.25 (LO 3) (NOL Carryforward, Valuation Account Needed) Meyer reported the following pretax financial income (loss) for the years 2020-2022. 2020 $120,000 2021 (150,000) 2022 180,000 Pretax financial income (loss) and taxable income (loss) were the same for all years involved. The enacted tax rate was 20% for 2020-2022. Instructions a. Prepare the journal entries for the years 2020-2022 to record income tax expense, income taxes payable, and the tax effects of the loss carryforward, assuming that based on the...
19.25 (LO 3) (NOL Carryforward, Valuation Account Needed) Meyer reported the bonus pretax financial income (loss) for the years 2020-2022 2020 $120,000 2021 (150,000) 2022 180,000 Pretax financial income (loss) and taxable income (loss) were the same for all years involved. The enacted tax rate was 20% for 2020-2022. Instructions 2. Prepare the journal entries for the years 2020-2022 to record income tax expense, income taxes payable, and the tax effects of the loss carryforward, assuming that based on the...