Question

In its first year of existence (year 1), Willow Corp. (a C corporation) reports a loss for tax purposes of $50,000. In year 2 it reports a $40,000 loss. For year 3, it reports taxable income from operations of $100,000 before any loss carryovers. How much tax will Willow Corp. pay in year 3, what is its NOL carryover to year 4, and when will the NOL expire 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 Willow Corp. tax liability in Year 3 Willow Corp. NOL carryover to Year 4

Answer 1

ANSWER

Calculation of Willow Corp. Tax Liability in Year 3 ( corporation's NOL carryover can only offset 80 percent of taxable income without regard to the new section 199A deduction) Therefore, Year 3 Income $100000 Carryforward losses Year 1 $50000 Year 2 $40000 $90000 Eligible Carryforward Loss Amount is :- =100000*80% 80000 Therefore, Willow Corp Tax Liability for Year 3 is =100000-80000 =20000 =20000 * 21% =4200 Willow Corp NOL Carryover to Year 4 :- =50000+40000-80000 =10000

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