Gwen and Travis Organized a New Business as an LLC

question 72

Multiple Choice

Gwen and Travis organized a new business as an LLC in which they own equal interests. The new business generated a $10,000 operating loss its first year. Travis has no other taxable income for the current year, but expects to have sufficient taxable income in future years to pay tax in the 24% tax bracket. Which of the following statements regarding Travis' tax savings from the current LLC loss is true?

• A) Travis can carry his share of LLC loss back two years as a net operating loss, and request an immediate tax refund of $1,200.
• B) Travis can carry his share of LLC loss forward, and will get tax savings only when he generates future income.
• C) Travis can only use his share of the LLC loss in the current year, and will receive no tax savings.
• D) The LLC will reallocate Travis share of the loss to Gwen, who can claim $1,750 of additional tax savings.

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Definitions:

Markup

The amount added to the cost price of goods to cover overhead and profit, expressed as a percentage of the cost price.

Selling Price

The amount for which a product or service is sold to customers.

Organic Nutrients

Essential minerals and compounds derived from living organisms used to promote plant or soil health.

Batch

A set of goods or materials processed or produced at the same time, often used in the context of batch processing.