C is corrent. The requirement is to determine the amount of net operating loss (NOL) for a self-employed taxpayer for 2012 A NOL generally represents a loss from the conduct of a trade or business and can be carried back 2 years and forward 20 years to offset income in the carryback and carryforward years. Since a NOL generally represents a business loss, an individual taxpayer’s personal exemptions and an excess of nonbusiness deductions over nonbusiness income cannot be subtracted in computing the NOL. Nonbusiness deductions generally include itemized deductions as well as the standard deduction if the taxpayer does not itemize. In this case, the $5,950 standard deduction offsets the $1,700 of nonbusiness income received in the form of dividends and short-term capital gain, but the excess ($4,250) cannot be included in the NOL computation. Thus the taxpayer’s NOL simply consists of the $10,000 business loss.
A is incorrect. The dividends and capital gain are offset by the standard deduction.
B is incorrect. The standard deduction can not be included in computing the NOL.
D is incorrect. The personal exemption can not be included in computing the NOL.
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