Patrick Has a Business Net Operating Loss of $70,000 in 2018.Patrick's

question 86

Multiple Choice

Patrick has a business net operating loss of $70,000 in 2018.Patrick's business generated significant taxable profits in 2016 and in 2017.Which of the following is true?Patrick may elect to offset the income he generated in 2017 with 2018's net operating loss.The remaining net operating loss (if any) can be used to offset future taxable income.

• A)Patrick may offset income he generated in 2016 and 2017 with 2018's net operating loss by carrying the net operating loss back to each of those tax years.The remaining net operating loss (if any) can be carried forward and used to offset future taxable income.
• B)Patrick may use the net operating loss to offset income from any year he chooses.
• C)Net operating losses can offset 80% of the income in future years.
• D)Patrick may elect to offset the income he generated in 2017 with 2018's net operating loss.The remaining net operating loss (if any) can be used to offset future taxable income.
• E)None of the above.

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Definitions:

Working Capital

The difference between a company's current assets and its current liabilities, indicative of its short-term financial health.

Discount Rate

The discount rate is the interest rate used to calculate the present value of future cash flows in discounted cash flow analysis, reflecting the risk and opportunity cost of capital.

Pretax Return

The income an investor or business earns before any taxes are deducted.

Net Present Value

A financial measurement that calculates the value of a project or investment by discounting the expected future cash flows to their present value using a specific discount rate.