LTLFTcomposite wrote:Cutting the corporate tax rate hurts companies that aren't profitable because they don't benefit from the cuts.
How does this hurt them?...
The report below explains how most
corporations with loss carryovers are adversely impacted.
TSLA however, has been losing so much money for so long, and since it expects to continue to lose money so far into the future, it had already largely written down the value of its deferred tax assets
, so relatively little more damage was done to it by the new law.
https://www.marketwatch.com/story/even- ... 2017-12-15
Even with its losses, Tesla won’t take a big hit from lower tax rate
Tesla has racked up the losses as the electric vehicle maker has tried to scale up. But unlike some other companies with a history of losses, corporate tax reform won’t force them into a major write-down.
Tesla doesn’t have to worry about a big hit to its bottom line as a result of tax reform because the company has already written down the value of its large deferred tax assets, telling investors in its last annual report they don’t know when they will be profitable enough to ever use them.
Many companies that have a prior history of big losses like Citigroup, Fannie Mae and Freddie Mac face huge writedowns of their deferred tax assets based on a “remeasurement” of the potential for those assets to reduce future tax liabilities. The calculations are based on the tax reform bill’s proposed reduction of the corporate tax rate from 35% to 20%.
But when companies like Tesla have already determined that it is “more than likely” they will be unable to use the assets to reduce future tax liabilities in the near future—typically because of chronic losses—accounting standards require them to make a “valuation allowance”, which means they already took a hit to profits.
Tesla wrote that as of the end of 2016, it had recorded “a full valuation allowance on our net U.S. deferred tax assets because we expect that it is more likely than not that our U.S. deferred tax assets will not be realized in the foreseeable future.”
Tesla reported losses of $746.3 million in 2016, $875.6 million in 2015, and $284.6 million in 2014...