Gwen and Travis organized a new business as an LLC in which they own equal interests. The new business generated a $10,000 operating loss its first year. Travis has no other taxable income for the current year, but expects to have sufficient taxable income in future years to pay tax in the 24% tax bracket. Which of the following statements regarding Travis' tax savings from the current LLC loss is true?
A) Travis can carry his share of LLC loss back two years as a net operating loss, and request an immediate tax refund of $1,200.
B) Travis can carry his share of LLC loss forward, and will get tax savings only when he generates future income.
C) Travis can only use his share of the LLC loss in the current year, and will receive no tax savings.
D) The LLC will reallocate Travis share of the loss to Gwen, who can claim $1,750 of additional tax savings.

Question

Quizplus · Accepted Answer

Travis cannot carry the loss back since he has no prior taxable income in the past two years. Therefore, he must carry the loss forward to offset his future taxable income. Once he generates income in the future, the $10,000 loss will reduce his taxable income and provide tax savings. He will save tax at a 24% rate, resulting in a $2,400 tax savings.

Gwen and Travis Organized a New Business as an LLC