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Net operating losses and why you can carry them forward

Tuesday, October 4, 2016 5:11
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(Before It's News)

Suppose you have a business. Let’s say that business, due to various reasons, lost a million dollars in 2014. In 2015, however, your business made $1.5 million.

Your total income for 2014 and 2015 is $500,000.

No assume the federal, state and local corporate income taxes amount to 40 percent. Since you can carryover your loss from 2014, you will pay 40 percent of your $500,000 income or $200,000 in taxes.

If there was no carryover, you would pay no taxes in 2014 and 40 percent of $1.5 million in 2015. You would be required to pay $600,000 in taxes on $500,000 of income.

The media, however, would only look at your 2015 income of $1.5 million and decry the fact that, by paying $200,000 in taxes, you are gaming the system and getting away with only 7.5 a percent tax rate. This is either ignorant or dishonest.

Bear this in mind as the media now portrays Trump’s carryover is some obscure tax law used by the ultra rich. It isn’t. It is used by small businesses, farmers, writers, etc. It is absolutely positively fair and the alternative they imagine would be, ironically, be terrible unfair.

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