As everyone is aware, over the past few years our economy has been very unstable. Because of this many businesses have lost hundreds of thousands of dollars. Some businesses have been able to cut back to survive, others have been able to borrow money to weather the storm and others have had to give up and go out of business income actual loss sustained
Business Income Actual Loss Sustained With Net Operating Loss
This has caused a tax situation that up until about 5 years ago was very uncommon. It is called a Net Operating Loss or NOL. A NOL is when your tax return shows your company has lost money for the year. This is very simple to figure out. All you have to do is add up your expenses and income. If your expenses are more than your income, you have got an NOL. NOL’s, can be difficult to deal with. No one likes to loose money. But they can actually be turned around to benefit you in other tax years. Here is how.
The IRS code allows you to utilize two tax business income actual loss sustained known as carry backs and carry forwards. A NOL Carry Back means that you can take the losses from the current year and apply them to previous years, or in other words, “carry” them “back” to another year that you had a profit business income
Recovering Business Losses
For example, let’s say that in the current year you had a NOL of $50,000, which means you lost $50,000. But in 2009, you made money, and you had a taxable income of $50,000. You would have paid at least $10,000 in taxes in 2009. By carrying back the $50,000 loss, you would be able to reduce your taxable income in 2009 to $0 and get the $10,000 you paid in taxes refunded to you. You can carry these losses back up to three years.
But what if you didn’t pay any taxes over the past 3 years? Well, if you can’t go back you can go forward. If this is your situation, you can transfer the losses to future years (up to 15) and they can reduce your taxable income in the future. Other than difficult economic times, a NOL often comes from starting up a business, which makes an it a great way to reduce your income as your business income actual loss sustained grows and becomes more profitable.
The NOL process can be a little tricky, so it is important to go to someone who has experience with them. Even the IRS struggles with NOL carry backs because until recently very few carry backs were filed.