How do you calculate income tax when generating a net profit after two net losses?
Say a firm has a net loss of 8803 in one month and 6573 in the second month. In month three, it makes a profit (before income tax) of 20824. There are no dividends and the retained profits at the start of the month are -6573. How do I calculate income tax for that month, assuming we are taking into account the previous net losses?
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July 31st, 2010 at 9:26 am
Can’t tell you about Australia.
In the USA, losses are carried forward. Any profits will offest those losses.
If the profits exceed the losses with a net gain, only then will there be a tax obligation.
The losses will carry forward until a net profit is realized, even from one year to the next.
July 31st, 2010 at 10:01 am
roughly speaking…net loss from the previous 2 months:
-8803 + -6573 = -15376 then this loss gets off set again the 3rd month’s profit: 20824 – 15376 = 5448
5448 is the amount the firm would need to tax on…