Question

Chang, who is single, had the following items for 2020:

Salary$ 40,000
Interest income 10,000
Loss on theft of securities(60,000)
Chang's NOL for 2020 is:______

Answer 1

Chang's Net Operating Loss (NOL) for 2020 is $0 as his salary and interest income total $50,000, which is less than his $60,000 loss from theft of securities. Since the loss exceeds the income, there can't be a positive NOL for the year.

Step-by-step explanation:

Calculating Chang's Net Operating Loss (NOL) for 2020. To calculate Chang's Net Operating Loss (NOL) for 2020, we start by summing up the income and the loss items. Chang's salary is $40,000 and the interest income is $10,000, adding up to a total income of $50,000. The loss on theft of securities is ($60,000). The NOL is calculated by subtracting the loss from the income. If the loss exceeds the income, the result is a negative amount, representing the NOL. Thus, the calculation for Chang's NOL for 2020 is:

Total Income (Salary + Interest Income) - Loss on theft of securities = NOL
$40,000 (Salary) + $10,000 (Interest Income) - ($60,000) (Theft Loss) = $0 (No NOL as loss exceeds income)

Since the theft loss is greater than the total income, Chang cannot have a positive NOL. The law may provide for the loss to be carried to other years, which is beyond the scope of this calculation.