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Rocky Mountain Airlines began operations in 2017 recording a loss of income that year followed by...

Rocky Mountain Airlines began operations in 2017 recording a loss of income that year followed by two years of positive income. The company has reported the following levels of taxable income (EBT) for those years (see below). The corporate tax rate was 25% each year. Assume that the company has taken full advantage of the Tax Code's carry-forward provisions. What is the amount of taxes the company paid in 2019?

Year      Taxable Income
2017       -$6,000,000
2018          $5,000,000
2019          $5,000,000

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Answer #1

the company has 6000000 losses in 2017 which can be used in future years . The losses will be first used in 2018 for $5000000 and left out of $1000000 will be used in 2019

Thus Tax liability 2019 = (Taxable income - Carryforward losses) * tax Rate

Tax liability 2019 = (5000000 - 1000000) * 25%

Tax liability 2019 = $1000000

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