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Accounting: Taxes 1 Views
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Transcript
- 00:00
Accounting Allah shmoop taxes Yeah you knew we'd get there
- 00:06
We're just going to conclude our little pillow story with
- 00:09
a pink ribbon around the present Note that the seven
- 00:11
million dollars of losses that they just had there's not
- 00:15
simply evaporate rights We have a little pillow company doing
Full Transcript
- 00:18
well growing a lot revenues but losing money not cash
- 00:22
but losing money because of depreciation appreciation of its big
- 00:25
fat fifty million dollars factory It's taken ten million off
- 00:28
this year Got it All right let's go back to
- 00:29
your income statement and peruse these lines So the seven
- 00:32
million dollars instead of just being gone vaporized never to
- 00:35
be heard from again Well that's seven million is repatriated
- 00:39
as losses for the following year which is a lovely
- 00:43
hedge against taxes Yes losses at least from attacks perspective
- 00:48
have value You get to carry those previous years losses
- 00:51
forward into the next year so that if it then
- 00:54
is profitable the previous year's losses make it appear less
- 00:58
profitable when it comes to paying taxes to your friendly
- 01:01
neighborhood i R S agent So in this model the
- 01:03
company earns two point two five million dollars of pretax
- 01:06
income the following year Normally that would carry the thirty
- 01:09
two percent tax rate and a charge of seven hundred
- 01:11
twenty grand And it would look like this But instead
- 01:14
since they had seven million dollars of losses to carry
- 01:17
forward while the cumulative losses of the seven million now
- 01:20
shrinks by the profits the taxable ones of that two
- 01:23
point two five million the company just made So we
- 01:26
still show a loss of four point seven five million
- 01:28
which will then carry forward into next year And yes
- 01:32
there's usually about a seven eight nine year time limit
- 01:35
on these net operating loss Carry forward well at that
- 01:37
time next year Well note that the pretax income is
- 01:40
expected to be over thirty four million dollars Well we
- 01:44
can then deduct the tax loss carry forward so that
- 01:47
instead of paying taxes on the thirty four million bucks
- 01:50
and change there we'll be paying taxes on some amount
- 01:52
under thirty million dollars Got it Because we'll be able
- 01:55
to deduct that loss Carry forward seems like a small
- 01:58
thing but that spread of the four point three million
- 02:01
dollars at a thirty e percent tax rate is well
- 02:04
over a million bucks in tax savings and how did
- 02:06
we get it But we have thirty four point three
- 02:08
million dollars that we would be paying if we didn't
- 02:11
have that net operating loss carry forward But we have
- 02:14
it So we subtract about four point three million there
- 02:16
from the thirty four point three million to give us
- 02:19
thirty million of taxable earnings And there's a smoothing advantage
- 02:23
And all these loss carry forwards as well that the
- 02:25
company's produced that is very generally speaking in bad economic
- 02:30
times Lots of companies lose money but most will live
- 02:33
to fight another profitable day a year or two or
- 02:36
even three later by giving cos this type of quays
- 02:39
I tax credit Well they're encouraged to keep spending even
- 02:42
in bad times rather than you know pulling in the
- 02:45
sales and firing half their workforce because they know that
- 02:48
the extra losses they incur are kind of an asset
- 02:50
or a benefit that they'll reap in the form of
- 02:53
lower taxes in years forward The economy then tends to
- 02:56
recover more quickly and the bad isn't so bad and
- 02:59
the world continues Tio turn and eventually upgrade cars and
- 03:03
airlines and washing machines which are all cyclical in more
- 03:06
ways than one All right well you'll have earned your
- 03:08
soup if you do this function often for your company
- 03:10
And while these various functions seem mundane by paying careful
- 03:13
attention to every niggling detail you the ungh lore if
- 03:16
I'd bean Counter can become a rock star in helping
- 03:19
deliver to the bottom line the job of essentially all
- 03:22
companies which is to produce profits that and you know 00:03:26.28 --> [endTime] have a baseball stadium named after them
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