Answered: Provide chronological analysis of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Tyler, a taxpayer, generates business income of $3000 in 2016. In 2017 he generates an NOL of $2000. In 2018 he incurs another NOL of $5000. In 2019 he generates a modest business income of $6000 and then in 2020 the COVID-19 pandemic results in an NOL of $13,000. In 2021 Tyler's business generates income of $13000. Assume that in all years Tyler adopts the NOL treatment that results in the earliest and greatest refund. Provide chronological analysis of Tyler's treatment of NOLs through 2021 and report NOL carry forward into 2022.

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## Problem 4-13: Net Operating Losses (LO 4.9)

Tyler, a single taxpayer, generates business income of $3,000 in 2016. In 2017, he generates an NOL of $2,000. In 2018, he incurs another NOL of $5,000. In 2019, he generates a modest business income of $6,000, and then in 2020, the COVID-19 pandemic results in an NOL of $13,000. In 2021, Tyler’s business generates income of $13,000. Assume that in all years, Tyler adopts the NOL treatment that results in the earliest and greatest refund. Provide a chronological analysis of Tyler’s treatment of NOLs through 2021 and report any NOL carryforward into 2022.

### Chronological Analysis:

1. **2017:**
- Tyler carries back his $2,000 NOL against his 2016 income leaving $1,000 of 2016 income.

2. **2018:**
- Tyler carries forward the NOL to 2019.

3. **2019:**
- Tyler can offset 80% of his 2019 income with the 2018 NOL, and he has a $200 carryforward from 2018.

4. **2020:**
- The COVID-19 provisions allow him to carry back $1,000 to 2016.
- He can now use all of the remaining $200 2018 loss against the 2019 income and then can use another $1,000 of 2020 NOL against the remaining 2019 income.
- The remaining $9,000 NOL from 2020 may be carried forward into 2021. After 2020, NOLs are subject to an 80% income limitation. Tyler will be able to use $4,000 in 2021 and have a $13,000 NOL to carry forward into 2022.

### Summary Table:
| Year | Action | NOL C/F |
|-------|-------------------------------------------------------------------------------|---------------|
| 2017 | Carried back $2,000 to 2016, leaving $1,000 of 2016 income | |
| 2018 | Carry forward NOL to 2019 | |
|

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