Abuelo, Inc. generated a net operating loss of ($1,250,000) this year. Its income for the past 3 years was as follows:
| 3 yrs ago | 2 yrs ago | last yr | |
| Taxable income | $300,000 | $400,000 | $500,000 |
| Tax liability | 100,250 | 136,000 | 170,000 |
Abuelo carried the maximum amount of its NOL back. How much will be left to carry forward?
| a. | Zero | |
| b. | $50,000 | |
| c. | $350,000 | |
| d. | $1,250,000 |
Answer: Amount to carry forward = $ 350,000
Working notes for the Above answer
In business if operating expenses on its tax return that is more then revenue revenues, it said as net operating loss (NOL) has been created. It can be carry forward or carry back. for Carry the amount back to the preceding two tax years and apply it against any taxable income, and this will generate an immediate tax rebate.
In the present sum we have been provided with the information of the past 3 years but we can carry back it to 2 years and whatever remaining we can carry forward it to next year
Current NOL
-1,250,000
Last year Taxable income
500000
Last Second year Taxable
income
400000
NOL Carry forward
3,50,000
