In the first two years of operations, a company reports taxable income of $200,000 and $250,000, respectively. During these first two years, the tax rates were 30% and 35% respectively. It is now the end of the third year, and the company has a loss of $260,000 for tax purposes. The company carries losses to the earliest year possible. The tax rate is currently 40%. The amount of income tax receivable in the current (third)year is:

Question

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The company can carry back the $260,000 loss to offset the $200,000 taxable income from the first year, resulting in a tax refund of $60,000 (30% of $200,000). The remaining $60,000 loss can offset part of the $250,000 taxable income from the second year, resulting in an additional tax refund of $21,000 (35% of $60,000). The total tax receivable is $81,000 ($60,000 + $21,000).

In the First Two Years of Operations, a Company Reports