Night Owl Inc. reports a taxable and pre-tax accounting loss of $150,000 for 2017. The corporation's taxable and pre-tax accounting income and tax rates for the last two years were: The 2017 tax rate is 30%. If Indiana elects to use the carryback provisions, the amount that should be reported as income tax receivable for 2017 is

Question

Night Owl Inc. reports a taxable and pre-tax accounting loss of $150,000 for 2017. The corporation's taxable and pre-tax accounting income and tax rates for the last two years were:  The 2017 tax rate is 30%. If Indiana elects to use the carryback provisions, the amount that should be reported as income tax receivable for 2017 is

Quizplus · Accepted Answer

The corporation is reporting a taxable and pre-tax accounting loss of $150,000 for 2017. Since it is a loss, the corporation can elect to carry it back to the previous two years (2015 and 2016) and receive a refund of the taxes paid in those years.

To determine the amount of tax refundable, we need to calculate the taxable income and taxes paid for 2015 and 2016.

For 2015:

Taxable Income: $120,000
Tax Rate: 35%
Taxes Paid: $42,000

For 2016:

Taxable Income: $80,000
Tax Rate: 30%
Taxes Paid: $24,000

Thus, the total taxes paid for the past two years are $66,000. Since the corporation can carry back the $150,000 loss to these years, it will receive a refund of $45,000 ($150,000 x 30%).

Therefore, the amount that should be reported as income tax receivable for 2017 is $30,000 ($45,000 refund - $15,000 2017 tax liability = $30,000).