For its first four years of operation, ABC Co. reported the following taxable income:

2017 2018 2019 2020

Ordinary income $22,000 $16,000 $160,000 $700,000

Net capital gain - 19,000 4,000 -

Taxable income $22,000 $35,000 $164,000 $700,000

In 2021, ABC Co. generated $1,000,000 ordinary income and recognized a $20,000 loss on the sale of a capital asset (2021 tax rate is 21%). It is considering selling a second capital asset before the end of 2021. This sale would generate a $21,000 capital gain that would allow the corporation to deduct its entire capital loss. Alternatively, it could carry its $20,000 net capital loss back to 2018 and 2019 and receive tax refund. Assume that the corporations marginal tax rate is 15% in 2018 and 21% in 2019. Which course of action do you recommend and why?

(Hint: Calculate the tax saving under the two scenarios and recommend accordingly)