Final answer:
The NOL (Net Operating Loss) deduction allows individuals and businesses to offset losses from one year against profits from another year for tax purposes. In this case, Sara's NOL deduction for 2020 can be either her entire taxable income ($85,000) or the NOL carryforward amount ($30,000), depending on which is smaller.
Step-by-step explanation:
The NOL (Net Operating Loss) deduction allows individuals and businesses to offset losses from one year against profits from another year for tax purposes. In this case, Sara has an NOL carryforward of $30,000. To calculate Sara's NOL deduction for 2020, we need to compare her taxable income before the NOL deduction ($85,000) with the NOL carryforward amount ($30,000).
If Sara's taxable income is less than the NOL carryforward, her NOL deduction would be the amount of her taxable income. So, if her taxable income is $85,000 and her NOL carryforward is $30,000, she can deduct the entire amount of her taxable income ($85,000) as her NOL deduction for 2020.
However, if her taxable income is greater than the NOL carryforward, her NOL deduction would be limited to the amount of the NOL carryforward. So, if her taxable income is $85,000 and her NOL carryforward is $30,000, she can deduct $30,000 as her NOL deduction for 2020.