Who Form 8854 Defer 2023-2024

What we're going to be going over here is an example for carry backs and carry forwards for net operating losses. We'll have ground rules for the carry back, which allows us to carry losses back two years. For the carry forwards, we can carry net operating losses forward five years. In this example, we'll be given pre-tax financial income for each year from 20X1 to 20X7, as well as the tax rate. For 20X1 and 20X2, the tax rate is 35%, and for 20X3 to 20X7, the tax rate is 30%. We'll focus on the years 20X3 to 20X7, specifically the profitable years and how we account for them. In 20X3, we have a profit based on our financial income. In 20X4 and 20X5, we have two consecutive years with net operating losses. In 20X6 and 20X7, we have more profitable years. We'll start by discussing how we record taxes for the profitable years 20X3, 20X6, and 20X7. Then, we'll explore how we handle the net operating losses in 20X4 and 20X5. In 20X4, we have a net operating loss of $160,000. To handle this loss, we first look at the carry back. Since there is a two-year carry back, we can offset the $250,000 profit in 20X2 with the $160,000 loss. Therefore, the entire loss is absorbed in the carry back to 20X2. Moving on to 20X5, we have a total net operating loss of $350,000. Following the ground rules, we carry back two years and start with the $90,000 profit in 20X3. We can offset $90,000 of the $350,000 loss with this profit. However, in the second year, 20X4, there is no profit to absorb the remaining loss of $260,000. Therefore, we have a loss carry forward of $260,000 for 20X5. To record these transactions, we start...