In 2018, its first year of operations, Neuro Inc. experienced a $214,000 net operating loss and recorded a deferred tax asset of $81,320. Neuro decides that it is more likely than not that it will only be able to generate $195,000 of taxable income during the carryforward period. As a result, without generating additional future taxable income it will not be able to fully realize the NOL carryforward benefit. In order to account for this, what amount will Neuro Inc. record as a valuation allowance, assuming that the tax rate is unchanged?

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The deferred tax asset is based on the full $214,000 NOL, but Neuro Inc. expects to only utilize $195,000 of it. The difference is $19,000 ($214,000 - $195,000). With a tax rate of 38% ($81,320 / $214,000), the valuation allowance is $7,220 ($19,000 * 38%).

In 2018, Its First Year of Operations, Neuro Inc