An extraordinary item is unusual and infrequent.
For example, an earthquake in Texas would be extraordinary. An earthquake in California would not be extraordinary because it’s not unusual. Dropping a bomb on a Kansas cornfield is extraordinary. Let’s say a farm is in a 35% tax bracket. Someone drops a bomb causing a $60,000 loss. The $60,000 loss would be an extraordinary item. Because the loss is a tax deduction, the net of tax loss would be $39,000. $60,000 loss + $21,000 tax refund ($60,000 x .35% = $21,000) = actual out of pocket loss of $39,000. The net of tax extraordinary loss of $39,000 would be listed separately towards the bottom of the income statement. If the company was paid $150,000 for their loss, it would end up being an extraordinary gain. $150,000 -$60,000 would be a gain of $90,000. If you had a $90,000 gain you would pay income tax of $31,500 ($90,000 x .35). The net of tax gain would $58,000 (90,000 gain – $31,500 tax bill).
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