After you have completed a return and determined that the taxpayer has a NOL, what is the next step for claiming a NOL?
a. deduct the NOL in the carryback or carryforward year
b. determine the amount of the taxpayer's unused NOL
c. decide either to carry the NOL back to a past year or to waive the carryback period and carry the NOL forward to a future year.
d. carry over the unused NOL to the next carryback or carryforward year
After you have completed a return and determined that the taxpayer has a NOL, what is the next step for claiming a NOL?
a. deduct the NOL in the carryback or carryforward year
b. determine the amount of the taxpayer's unused NOL
c. decide either to carry the NOL back to a past year or to waive the carryback period and carry the NOL forward to a future year.
d. carry over the unused NOL to the next carryback or carryforward year
Related questions
Supreme Chips is a manufacturer of prototype chips based inâ Dublin, Ireland. Nextâ year, in 2018â,Supreme Chips expects to deliver 575 prototype chips at an average price of $90,000. Supreme Chips' marketing vice president forecasts growth of 55 prototype chips per year through 2024.
Thatâ is, demand will be 575 in 2018â,630 in 2019â,685 in 2020â, and so on.
The plant cannot produce more than 545 prototype chips annually. To meet future âdemand,Supreme Chips must either modernize the plant or replace it. The old equipment is fully depreciated and can be sold for $4,700,000. if the plant is replaced. If the plant isâ modernized, the costs to modernize it are to be capitalized and depreciated over the useful life of the updated plant. The old equipment is retained as part of the modernize alternative. The following data on the two options areâ available:
| Modernize | Replace | ||
| Initial investment in 2018 | $34,800,000 | $66,100,000 | |
| Terminal disposal value in 2024 | $6,600,000 | $16,800,000 | |
| Useful life | 7 years | 7 years | |
| Total annual cash operating cost per prototype chip | $74,500 | $65,000 |
Supreme Chips usesâ straight-line depreciation, assuming zero terminal disposal value. Forâ simplicity, we assume no change in prices or costs in future years. The investment will be made at the beginning of 2018â, and all transactions thereafter occur on the last day of the year.Supreme âChips' required rate of return is 6â%.There is no difference between the modernize and replace alternatives in terms of required working capital. Supreme Chips has a special waiver on income taxes until 2024.
Requirement 1. Sketch the cash inflows and outflows of the modernize and replace alternatives over the 2018â-2024 period.
âFirst, determine the cash inflows and outflows of the modernize alternative over the 2018 to 2024 period. â(Use a minus sign or parentheses for a cash outflows. Leave unused cellsâ blank.)
| Units | Net cash | Initial | Proceeds from | |
| Year | sold | contributions | investments | sale of equipment |
| Jan 1, 2018 | $(34,800,000) | |||
| Dec 31, 2018 | 575 | $8,912,500 | ||
| Dec 31, 2019 | 630 | 9,765,000 | ||
| Dec 31, 2020 | 685 | 10,617,500 | ||
| Dec 31, 2021 | 740 | 11,470,000 | ||
| Dec 31, 2022 | 795 | 12,322,500 | ||
| Dec 31, 2023 | 850 | 13,175,000 | ||
| Dec 31, 2024 | 905 | 14,027,500 | $6,600,000 |
âNext, determine the cash inflows and outflows of the replace alternative over the 2018 to 2024 period. â(Use a minus sign or parentheses for a cash outflows. Leave unused cellsâ blank.)
| Units | Net cash | Initial | Proceeds from | |
| Year | sold | contributions | investments | sale of equipment |
| Jan 1, 2018 | $(66,100,000) | $4,700,000 | ||
| Dec 31, 2018 | 575 | $14,375,000 | ||
| Dec 31, 2019 | 630 | 15,750,000 | ||
| Dec 31, 2020 | 685 | 17,125,000 | ||
| Dec 31, 2021 | 740 | 18,500,000 | ||
| Dec 31, 2022 | 795 | 19,875,000 | ||
| Dec 31, 2023 | 850 | 21,250,000 | ||
| Dec 31, 2024 | 905 | 22,625,000 | $16,800,000 |
Requirement 2. Calculate payback period for the modernize and replace alternatives. â(Round your answers to two decimalâ places.)
The payback period for the investment assuming the modernize alternative is ____ years.
| 3. | Calculate net present value of the modernize and replace alternatives |
In December each year, Eleanor Young contributes 10% of hergross income to the United Way (a 50% organization). Eleanor, whois in the 28% marginal tax bracket, is considering the followingalternatives for satisfying the contribution.
|
Eleanor has asked you to help her decide which of the potentialcontributions listed above will be most advantageous tax-wise.Evaluate the four alternatives and complete a letter toEleanor.
Determine the amount of the charitable contribution for eachoption.
|
| Hoffman, Young, Raabe, Maloney, & Nellen,CPAs 5191 Natorp Boulevard Mason, OH 45040 |
| December 5, 2017 |
| Ms. Eleanor Young 2622 Bayshore Drive Berkeley, CA 94709 |
| Dear Ms. Young: |
| I have evaluated the proposed alternatives for your currentyear-end contribution to the United Way. I recommend that you sellthe Gold Corporation stock and donate the proceeds to the UnitedWay. The four alternatives are discussed below. |
| A donation of cash, the unimproved land, or the Gold stock willresult in a $ charitable contribution deduction. Donation of theBlue Corporation stock will result in only a $ charitablecontribution deduction. |
| A direct contribution of the Gold Corporation stock will be apoor decision from a tax perspective in that thedecline in value is not deductible and the amountof the charitable contribution would be $. If you sell the Goldstock and give the proceeds to United Way, the donation of theproceeds will result in a $ charitable contribution deduction. Inaddition, sale of the stock will result in a $ long-term capitalloss. If you have capital gains of $ or more this year, you can usethe entire loss in computing your current taxable income. If youhave no capital gains this year, you can deduct $ of the capitalloss this year and carry over the remaining $loss to futureyears. |
| You should make the donation in time for ownership to changehands before the end of the year. Therefore, I recommend that younotify your broker immediately so that there will be no problem incompleting the donation on a timely basis. |
| Please let me know if you have any questions or would like todiscuss my recommendation and the related analysis. Thank you forconsulting our firm on this matter. We look forward to serving youin the future. |
| Sincerely, |
| Nora Oldham, CPA |
