In its first taxable year, Platform, Inc. generated a $100,000 net operating loss and made a $10,000 cash donation to a local charity. In its second year, Platform generated $350,000 operating income and made a $20,000 donation to the same charity. Compute Platform's taxable income for its second year. Assume neither year is 2020.

Question

Quizplus · Accepted Answer

Platform's net operating loss carryover from the first year is $100,000. In the second year, Platform's taxable income before the charitable deduction is $350,000. The charitable deduction is limited to 10% of taxable income before the deduction, which is $35,000. Therefore, Platform's taxable income for the second year is $350,000 - $35,000 = $315,000. However, the net operating loss carryover from the first year reduces Platform's taxable income to $315,000 - $100,000 = $215,000.

In Its First Taxable Year, Platform, Inc