About Tax and Valuation Options
Tax and valuation options enable you to configure and enter data for tax refund calculations, and use of three Strategic Modeling valuation methods. Tax and valuation options cover taxes, shareholder value, dividend discount, economic profit, and other valuations. You can also calculate tax effects and define the number of years for Net Operating Loss carryback and carryforward.
To access Tax and Valuation Options, perform the following: From the Data grouping label, click 
.
Calculating the Tax Effect of Operating Losses
Use Tax and Valuation Options to calculate tax effects, which appear in Calc Tax Refund (v1640.00). Without this option, you can manually enter a Net Operating Loss (NOL)-related tax refund in Additional Tax Refund (v1635.00)—see Example 7-1. Enter NOL-related inputs in the remainder of the dialog.
To automatically calculate tax effect of losses:
Example 7-1 Net Operating Loss Calculations
When total expenses exceed total income, a Net Operating Loss (NOL) occurs. In Strategic Modeling, you have an NOL when Taxable Income (v3140.00) is negative. NOLs impact the results of other years.
Example 7-2 NOL Carryback and Carryforward
NOLs can carry backward to generate tax refunds paid in previous years, or carried forward to offset future incomes. You can perform these calculations automatically or manually.
Strategic Modeling defaults the carryback period to 2 years, which reflects current U.S. tax law. You can change the length for your analysis. NOLs apply first to the earliest year in the carryback period.
If the current year NOL exceeds the taxable income in the earliest year, NOL applies to the second earliest year, and so on. To manage income and associated taxes from the year before your analysis, enter limits for the amount of income and taxes for a carryback to reach.
Strategic Modeling assumes the income and taxes occurred in the year before the first historical year. Losses during the carryback period could generate refunds of taxes paid before the analysis starts if the carryback period goes back that far.
If you carry back all the possible NOLs and still have not used up the current year NOL (or if the carryback period is 0), Strategic Modeling carries forward the NOLs to the extent of the carryforward period. Strategic Modeling defaults the carryforward period to 20 years, which reflecting current U.S. tax law. You can change the length if for your model.
If an NOL exists in the year prior to the analysis start, you can enter and carry it forward. Strategic Modeling assumes the loss occurred in the year before the first historical year.
Refunds are calculated once annually using annual results. If an NOL carries back to a year detailed in quarters (negative annual taxable income), the refund appears in the last quarter. If an NOL carries forward into a year detailed in quarters (annual taxable income is positive), the refund only displays in the last quarter.
Example 7-3 NOL Carryback Accounts
Six accounts illustrate the NOL carryback:
Example 7-4 Tax Refund Due to Loss Carryback (v3160.00)
The refund generated for carrying back current year losses back to previous years.
Example 7-5 Maximum Carryback (v3160.01)
At the period beginning, this is the largest loss that could be sustained in the current period and still be fully carried back. It is determined by adding the tax gains pool for each year during the carryback period and subtracting gains previously used.
Example 7-6 Tax Losses Offset (v3160.02)
In a period with a loss, this is the amount of loss actually carried back. It is the lesser of the amount of the loss and the maximum carryback.
Example 7-7 Tax Gains Pool (v3160.03)
This is taxable income net of amounts carried forward into the current period. These gains are the basis for carrybacks since future losses are carried back against them.
Example 7-8 Tax Gains Pool Used (v3160.04)
During the carryback period, this represents the amount of gains used by other losses.
Example 7-9 Tax Pool (v3160.05)
The current provision for income taxes net of refunds due to loss carryforwards. Similar to Tax Gains Pool (v3160.03) since this account holds the taxes made refundable by carrybacks.
Example 7-10 NOL Carryforward Accounts
Five accounts illustrate the NOL carryforward:
Example 7-11 Tax Refund Due to Loss Carryforward (v3150.00)
Calculates refunds when losses from prior years carry forward into a gain year.
Example 7-12 Maximum Carryforward (v3150.01)
At the beginning of the period, this is the largest prior loss that could offset gains in the current period. Calculated by taking all the losses that occurred during the carryforward period and subtracting those previously used to offset gains.
Example 7-13 Tax Gains Offset (v3150.02)
In a period with a gain, the amount carried forward to offset it. It is the lesser of taxable income for the current period and the maximum carryforward.
Example 7-14 Tax Loss Pool (v3150.03)
Taxable loss for the current period net of amounts used for carrybacks. These are the losses carried forward.
Example 7-15 Tax Loss Pool Used (v3150.04)
During the carryforward period, the amount of losses used by carryforwards.
Example 7-16 Total Taxes on Operations (v3280.00)
Strategic Modeling performs the same calculations for NOL in determining Total Taxes on Operations (v3280.00) as it does in determining the current provision. The differences are that it uses Taxable Operating Profit (v3210.00) as the measure of income instead of Taxable Income (v31400.00) and that it uses 3250.xx and 3260.xx instead of 3150.xx and 3160.xx.