Question

Madison Corporation began operations in 2018 and generated a net operating loss of $80,000. Fortunately, Madison rebounded and had operating income of $95,000 in 2019 before considering the net operating loss from 2018. What taxable income (loss) should Madison report on its 2019 tax return?

Answer 1

A Company may carry a net operating loss back two years and receives refunds for income taxes paid in those years. the loss must be applied to the earliest year first and then to the second year. any loss remaining after the two year carry back may be carry forward up to 20 years to off set future taxable income. A company may elect the loss carry forward only, offsetting future taxable income for up to 20 years

In this case Madison Corporation set off his operating loss of $80000 (2018) from the net operating income of $95000 in 2019 and reports all these information and pay tax on the amount left after carry forward ($95000-$80000=$15000) as per the applicable rate