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How do net operating loss carryforwards and carrybacks work?
Publication 536 (2022), Net Operating Losses (NOLs) for Individuals, Estates, and TrustsCorporations generally have the same NOL rules as individuals. The carryback period is two years, carryofrward is 20 years. A 1120X is filed within three years of the due date (including extensions) of the return for the loss year. Alternately, the firm can file a Form 1139 - corporate application for tentative refund.Please note the NOL doesn't include corporate charitable contributions and the DRD goes before calculating the NOL. Source: 2H2022 Becker Regulation text, p. R3-20
How can you have a net income profit, but also report an operation loss?
Generally speaking this would happen when a company has a large gain that doesn’t come from operating their business. For example an accounting tax benefit could result in net income despite a loss from operations. This might happen when a company loses money for an extended period of time and can use those losses to offset future income for tax purposes. In this scenario the amount that they can deduct shows up as an asset on their balance sheet but only once a company establishes that they are likely to start making a profit and can use those past losses to reduce taxes on current income.So let’s say you have a start up and it loses 10 million dollars over its first 5 years in business. In year 6 the company might decide they are going to start making a profit soon and that 2 million of those previous lossses can be used to reduce their tax bill. In that scenario the company would record a 2 million dollar gain from the “tax benefit” that would show up as income but not operating income. If the company lost a million dollars from running their business they could still have a 1 million dollar profit since the act of adding a 2 million dollar tax asset to the balance sheet adds 2 million in income during the quarter. It’s of course not real income. It’s income derived from accounting rules,
How do you calculate 'net loss attributable to common stockholders'?
Net income and net loss are expressing the same thing: how much the company earns after taxes and all other expenses (generally speaking--there are exceptions).  If earnings per share are less than $0, that is a loss, also referred to as a "net loss".Since you don't pra link for your quote, I can't tell you how the numbers are calculated.  Nonetheless, here is Yahoo Finance's presentation of Netflix's income statement (quarterly): Netflix, Inc. Stock - Yahoo! FinanceYou will see that for the period ending June 30, 2022. total revenue was 1.34 billion and gross profit was $435 million.  Operating income is $129.6 million, net income from continuing operations is $71.018 million, and since there is nothing below this in the income statement*, net income applicable (attributable) to common shares is $71.018 million.*You should really be using the income statement provided by Netflix in its regulatory filings for accurate numbers, I am using Yahoo's presentation here merely because it is convenient to illustrate the point.Finally, what does it mean to say that income is attributable to common shares?  Well, equity and debt are how a company is financed, it is often used to know how efficient the company's capital raising has been by calculating earnings per share.  Companies that generate a lot of retained earnings won't have to issue lots of shares to fund their operations.So, to answer the question of calculation: Net income / common shares outstanding = earnings per share.  Remember that "income" in this case can be a negative number, i.e., a loss, in which case earnings per share will be less than $0.
How does a corporation go about selling its Net Operating Loss (NOL) to an entity that can use it?
First, the acquiring company purchases options to buy the company stock at a fixed price.Next, the acquiring company transfers profitable transactions to the NOL entity (e.g., the NOL entity makes profitable sales that would have otherwise been sold by the acquiring entity), and the NOL entity is paid in receivables, not cash.Third, the NOL entity eats up its NOL with this year’s profit and files its tax returns reporting profit offset by NOL’s and no resulting tax liability.Fourth, the acquiring company exercises its options and acquires the NOL entity which is now devoid of NOLs.Fifth, the acquiring (edit: that’s acquired) company is liquidated, and its assets are distributed to the acquiring company. The receivables are collected tax free.Sixth, the accountants send a massive bill to the acquiring company for a job well done.
How do you calculate net operating income after taxes if net operating income is negative?
Ask yourself this question:Why do you want to calculate net operating income after tax? How are you going to use this information?Use the answer from these 2 questions to determine how should you calculate the net operating income after tax if the net operating income is negative.Let me show you one example:I am trying to value a company using the discounted cash flows (DCF) method. For the first few years, I am expecting that the company to make a loss - thus resulting in negative net operating income.But I am pretty confident that it will make a profit after 3 years.Based on my understanding on my local tax law, losses can be carry forward to offset future profits under certain conditions.If a company makes a loss of $100. With a tax rate of 20%, I will have $20 that I can use to offset future profits. This means that my loss is not really $100. My loss is actually $80, provided I know I can make a profit in the future.This means that I should be comfortable by calculating net operating income after taxes (NOPAT) this way:NOPAT = Net Operating Income Before Tax * (1 - Tax Rate)Notice that this is no different from the scenario if the NOI is positive.This is a simplified scenario that ignore the time value of money. If you want to be strict, you should value the $20 at the time where you make more than $20 in profits rather than at the time it occur.I also ignore the tax laws in this example. Taxes are not determined by multiplying a rate on the net income. There are a lot more rules.Bottomline: Think about why do you want to calculate NOPAT. Use this reason and the tax law to guide your decision.If the country tax law do not allow carry forward of losses, then you can safely ignore taxes because it will not have any impact if the company make a loss.
How do I fill out ITR 2, for capital profit/loss?
You can do Income Tax Return Filing in ITR-2 if you are an Individual or HUF having:Income from items in ITR 1 which is more than Rs. 50 lakhIncome from capital gainsForeign IncomeAgricultural Income more than Rs. 5,000Income from Business or Profession under a Partnership firmLegalraasta provides all the legal business services online. You can apply for ITR filing by going to their site.Hope it will help.Thanks
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