Hello all,
A simple accounting question here that I cannot wrap my head around. What happenes when you have a <span class='keyword_link'><a href="/resources/skills/accounting/earnings-before-tax-ebt">negative EBT</a></span> = Earnings before taxes, you can't just apply the tax rate to this because we have negative income. Do we just consider that we don't pay taxes on this periods earnings? so our <span class='keyword_link'><a href="/resources/skills/accounting/what-is-net-income">net income would just</a></span> reduce to our negative EBT number? Thanks for any help.
-Bud
bump
You can't pay taxes (with the exception of sales and real estate) if you don't produce any profit.
I was initially stumped on a question like this when I interviewed with a tech bank. No revenues and $20 depreciation, walk me through the 3 statements.
Technically you would have to account for the tax benefit recieved by a NOL
Technically you could also pay taxes this period for income earned in previous periods. However negative EBT in the current period will not result in any taxes this period. do need to record the NOL
just keep track of it so when you are making money you catch up
Agreed. You basically have a tax asset that you can use to offset tax paid on operating profits in the past or going forward.
Since you have no income, you don't pay taxes, you just report a loss. Simple as.
what does bump mean anyhow??
It bumps the thread up to the top of the "Active" forum topics so people will see it.
Also, from Corp Fin 101.
You can get a tax break. I don't remember if it goes retroactively from the first loss (I think it might). So you had a loss in year 1 and you get a tax break based on the taxes paid the two previous years. So a 1MM loss (40% taxes) means you get back 400,000 from the government from the past two years of corporate taxes paid.
What I definitely know it is is that once you have a loss, you can apply that loss to the future tax period for 10-20 years with a 2 year window. Using the example above, you have a 1MM loss year 1 with a tax rate of 40%. For years 2 and 3 you have 500,000 gain w/ 40% taxes each year. The loss from year 1 would make it so that you did not have to pay taxes in years 2 and 3 even though you recorded a gain. If you earned more than the 1MM sum in years 2 and 3, then you would have to pay 40% on every dollar over the 1MM. If earned more than the 1MM in years 2 and 3, you still would not pay taxes, but you could not use that "excess tax protection" on income in year 4 (only a loss in years 2 or 3 could cover that).
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