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difference between a tax refund and a tax benefit

a) How would you describe the difference between a tax refund and a tax benefit?

b) What are the chances that a company will have 20 years of losses to actually use a loss carryforward (and still be in business)? How do accounting principles support holding an asset in the balance for this long?

c) There are situations where using the carryforward (even when carryback is available) makes more sense. What role does anticipated or known future tax rates play in the decision?

Solution Preview

(A) A tax refund is the amount of money that the taxpayer receives because after deductions were taken, the taxpayer paid more in income taxes than the taxpayer owed. This generates a tax refund. A tax benefit is similar to a credit; the taxpayer engages in some type of activity that is associated with a tax benefit, and the taxpayer receives a deduction for doing so. Examples include deductions for educational fees or deductions for the residential energy credit.

(B) The ...

Solution Summary

a) How would you describe the difference between a tax refund and a tax benefit?

b) What are the chances that a company will have 20 years of losses to actually use a loss carryforward (and still be in business)? How do accounting principles support holding an asset on the balance for this long?

c) There are situations where using the carryforward (even when carryback is available) makes more sense. What role do anticipated or known future tax rates play in the decision?

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