Question

Collins Co. began operations in 2010. The company lost money the first two years, but has been profitable ever since. The company's taxable income (EBT) for its first four years is summarized below:

Year	EBT
2010	−$3,000,000
2011	−$5,200,000
2012	$4,200,000
2013	$8,300,000

The corporate tax rate has remained at 34%. Assume that the company has taken full advantage of the Tax Code's carry-back, carry-forward provisions, and assume that the current provisions were applicable in 2010. What is Collins' tax liability for 2013?

Answer 1

Tax liabiltiy for year 2010 = -$3,000,000*34% = -$1,020,000, Carry forward to next year = -$1,020,000

Tax liabiltiy for year 2011 = -$5,200,000*34% = -$1,768,000, Carry forward to next year = -$1,768,000

Total tax credit from 2010 and 2011 = -$2,788,000

Tax liabiltiy for year 2012 = $4,200,000*34% = $1,428,000

Above tax amount shall be adjusted with available tax credit and the remaining credit shall be carried forward to next year

Available tax credit carried forward to year 2013 = (-)($2,788,000 - $1,428,000) = (-)$1,360,000

Tax liabiltiy for year 2013 = $8,300,000*34% = $2,822,000

Net tax liability for year 2013 after adjusting tax credit = $2,822,000 - $1,360,000 = $1,462,000

Collins' tax laibility for year 2013 = $1,462,000