Question

In its first year, Kirk Daley Inc. generated a $109,000 net operating loss, and it made...

In its first year, Kirk Daley Inc. generated a $109,000 net operating loss, and it made a $6,700 cash donation to a local charity. In its second year, Kirk Daley generated a $236,100 profit, and it made a $10,100 donation to the same charity. What is Kirk Daley's taxable income for its second year?

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Answer #1

As per the US tax laws from 2018, a business loss could be carried forward indefinitely and can be set off in future. Further, charitable donations, upto 50% of taxable income is allowed as deduction .

Hence, business loss b/f is 109,000 and no tax treatment for 6,700 donation.

Daley's taxable income computation is as follows in second year-

Profit- 236.100

Less: B/f loss adjustment - (109,000)

Less: 100% of charity deduction- (10,100)

Taxable Income- $117,000

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