Question

in 2023, sml corporation reported taxable income of $100,000 before any nol deductions. sml has a $170,000 nol carryover that originated in 2017 and a $90,000 nol carryover that originated in 2020. note: leave no answer blank. enter zero if applicable. required: what is sml's 2023 taxable income after the nol deduction (assuming it elects to forgo any nol carryback)? what nols can sml carryover to 2024?

Answer 1

SML Corporation's taxable income for 2023, after the NOL deduction, is -$288,000. The corporation can carry over a remaining NOL deduction of -$128,000 to 2024.

Step-by-step explanation:

SML Corporation's 2023 taxable income after the NOL deduction can be calculated as follows:

1. First, we need to determine the NOL deduction for the year. Since SML has a $170,000 NOL carryover from 2017 and a $90,000 NOL carryover from 2020, the total NOL deduction is $260,000.
2. Next, we subtract the NOL deduction from the taxable income before any NOL deductions. So, $100,000 - $260,000 = -$160,000.
3. However, the tax law limits the NOL deduction to 80% of taxable income in any given year. Therefore, SML can only deduct 80% of their taxable income from the NOL carryovers. In this case, 80% of -$160,000 is -$128,000.
4. Finally, we add the NOL deduction to the taxable income after NOL deductions to get the final taxable income. So, -$160,000 + -$128,000 = -$288,000.

Therefore, SML's 2023 taxable income after the NOL deduction is -$288,000.

As for the NOL carryovers to 2024, SML can carry over the unused portion of the NOL deductions to the following years. In this case, since the NOL deduction exceeded the taxable income in 2023, there would be a remaining NOL carryover of -$128,000 to 2024.

Answer 2

SML Corporation will carry forward a total of $70,000 from the 2017 NOL and $90,000 from the 2020 NOL to the next tax year.

To answer this question, we need to consider the rules for Net Operating Loss (NOL) carryovers in the United States as of 2023. These rules were subject to changes under the Tax Cuts and Jobs Act (TCJA) and subsequent legislation.

As of the last update in April 2023, NOLs arising in tax years beginning after December 31, 2017, can be carried forward indefinitely, but the deduction in any one year is limited to 80% of taxable income (determined without regard to the NOL deduction).

Let's break down the calculation:

1. 2023 Taxable Income Before NOL Deduction: $100,000

2. NOL Carryovers: $170,000 from 2017 and $90,000 from 2020.

3. Application of NOLs: Since the 2017 NOL predates the TCJA, it's not subject to the 80% limitation and can be used to offset 100% of taxable income. The 2020 NOL is subject to the 80% limitation.

4. Calculating NOL Deduction:

- First, use the 2017 NOL. Since the 2017 NOL is more than the 2023 taxable income, it can fully offset the $100,000.

- No portion of the 2020 NOL is needed for 2023, as the taxable income has been fully offset by the 2017 NOL.

5. 2023 Taxable Income After NOL Deduction: $0

6. NOLs Carried Over to 2024:

- The remaining part of the 2017 NOL: $170,000 - $100,000 = $70,000

- The entire 2020 NOL: $90,000

Let's perform these calculations.

For SML Corporation in 2023:

1. Taxable Income After the NOL Deduction: The taxable income is reduced to $0 after applying the NOL deduction.

2. NOLs Carried Over to 2024:

- From the 2017 NOL, $70,000 remains.

- The entire 2020 NOL of $90,000 is also carried over, as it wasn't needed for the 2023 deduction.

Thus, SML Corporation will carry forward a total of $70,000 from the 2017 NOL and $90,000 from the 2020 NOL to the next tax year.