Brass co. reported income before income tax expense of $60,000 for 2017. brass had no permanent or temporary timing differences for tax purposes. brass has an effective tax rate of 30% and a $40,000 net operating loss carry-forward from 2016. what is the maximum income tax benefit that brass can realize from the loss carry-forward for 2017?

(a) $20,000
(b) $18,000
(c) $12,000
(d) $40,000

The answer is C.

Explanation:

The $40,000 net operating loss carry-forward is the amount of loss in year 1 which may be carried forward to future years to offset the tax due in those years. The value of the carry-forward is the net operating loss multiplied by the tax rate for the year in which the carry-forward is expected to be realized. Therefore, the maximum income tax benefit that Brass can realize from the carry-forward in year 2 is $12,000 ($40,000 x 30%).

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