Answer:
$4,000
Explanation:
Given the following:
Year Taxable Income
2007 $50,000
2008 $40,000
2009 $30,000
2010 $20,000
2011 -$100,000
2012 $60,000
Tax Code's carry-back, carry-forward provisions, for 2007 allows companies to carry back current loss back for 2 years and carry it forward for 20 years.
Based on this, Mays Industries will carry the $100,000 loss in 2011 back to 2010 and 2009 and use $50,000 (i.e. $30,000 in 2009 plus $ $20,000) to offset part of the 2011 $100,000 loss. It will also carry forward the remaining $50,000 (i.e. $100,000 - $50,000) and offset it from the 2012 $60,000 profit. Therefore, we have:
Net taxable income in 2012 = $60,000 - $50,000 = $10,000
Company's tax liability for 2012 = $10,000 * 40% = $4,000.
