Question

Damon, Inc. began operations in 2017. It had the following gains and losses each year:
	2017	2018	2019
Long-term capital gain	50,000.00	10,000.00	3,000.00
Short-term capital gain	-	46,000.00	1,000.00
Long-term capital loss	(10,000.00)	(17,000.00)	(17,000.00)
Short-term capital loss	(14,000.00)	(5,000.00)	(20,000.00)
Taxable income prior to above gains and losses	340,000.00	400,000.00	100,000.00
Assume for the following questions that the 2019 tax rules applied every year:
1. What is taxable income for 2017?
2. What is taxable income for 2018?
3. What is taxable income for 2019?
4. Can Damon claim a refund from any of the years? If so, provide the total amount of the refund. Assume a 21% tax rate for each year.

Answer 1

Solution:-

	Accounts Title	2017	2018	2019
	Net long term capital gain/ (loss)	44,000	(7,000)	(14,000)
Less:	Net short term capital gain/ (loss)	(14,000)	41,000	(19,000)
	Net capital gain	30,000
	Net capital gain		34,000
	Net capital loss (when carried becomes short term)			(33,000)
Add:	Taxable income before	340,000	400,000	100,000
	Taxable income after	370,000	434,000	100,000

Damon, Inc. is entitled to a refund. It carries back the $33,000 loss in 2019 to 2017 (the company was not in existence prior to 2017) and offsets the $30,000 gain.

The remaining $3,000 loss ($33,000 - $30,000) is carried to 2018 and offsets part of the $34,000 gain. The refund is equal to:

($30,000 * 0.21) + ($3,000 * 0.21) = $6,930.