Suppose an employer has a project that yields $$400,000$ of net income in odd years and $$100,000$ of net operating losses in even years.

In situation one, the employer is a corporation and they have

$$ a tax rate of $21\%$ when the company has net income and $0\%$ when a company has a net loss; or

$$ a tax rate of $21\%$ and NOLs can be carried back two$-$years and forward indefinitely.

In situation two, the employer is a flow$-$through entity and they have

$$ a tax rate of $35\%$ when the company has net income and $0\%$ when a company has a net loss; or

$$ a tax rate of $35\%$ and NOLs can be carried back two$-$years and forward indefinitely.

The employer wants to hire you. However, you demand a salary of $$75,000$ per year and your tax rate is $35\%$ in both situations because of your other income.

Part $1$: What is the true cost to the employer if you are hired? Also, your employment contract is in increments of $2$ years $($i$.$e$.,2,4,6,$ etc.$).$

Part $2$: What amount of after$-$tax income are you demanding in both situations?

Part $3$: What alternative strategy might the employer and you negotiate whereby one or both of you are better off but neither is worse off?

Note $1$: To do a complete analysis and be able to compare alternatives, you may need to add a $7$th year in some situations.

Note $2$: In solving this case, I suggest that you use Excel and create four tables, such as:

$$ Table $1$ for the corporate form with carryforward election,

$$ Table $2$ for the corporate form with carryback election,

$$ Table $3$ for the flow$-$through entity form with carryforward election,

$$ Table $4$ for the flow$-$through entity form with carryback election.