Question

Fast Rocket, Inc. generated a net loss of $5,000 in its first year and taxable income of $15,000 (before the NOL deduction) in its second. Assuming a tax rate of 21%, what is Fast Rocket's total tax for both years?

Answer 1

Fast Rocket, Inc. would have a total tax of $2,100 for both years, taking into account the Net Operating Loss (NOL) deduction from the first year's loss applied to the second year's profits, and a 21% tax rate.

Step-by-step explanation:

To calculate Fast Rocket Inc.'s total tax for both years, we first look at the net loss of $5,000 in the first year, which is a negative profit. In the second year, the company had a taxable income of $15,000 before considering the net operating loss (NOL) deduction. With an NOL, the company can use the loss from the first year to offset profits in the second year, thus reducing taxable income for that year.

For the first year, the tax would be $0 because the company didn't make a profit. In the second year, the taxable income can be reduced to $10,000 (which is $15,000 minus the $5,000 loss from the first year). Applying the 21% tax rate to $10,000 gives us a tax payment of $2,100 for the second year. Therefore, the total tax for both years would be $2,100. No tax is paid in the first year due to the loss, thus only the tax from the second year is to be considered.