If you have a bad year in your business, the new net operating loss (NOL) rules are designed to stop you from using your business loss to find some immediate cash. The new (let’s call them bad-for-you) rules certainly differ from the prior beneficial rules.
Old NOL Rules
You have an NOL when your business deductions exceed your business income in a taxable year.
Before tax reform, you could carry back the NOL to prior tax years and get refunds of taxes paid in those prior years.
Alternatively, you could have elected to waive the NOL carryback and instead carry forward the NOL to offset some or all of your taxable income in future tax years.
New NOL Rules
Tax reform made two key changes to the NOL rules:
- You can no longer carry back the NOL (except for certain qualified farming losses).
- Your NOL carryforward can offset only up to 80 percent of your taxable income in a tax year.
The changes put more money in the IRS’s pocket by:
-eliminating your ability to get an immediate tax benefit from your NOL carryback, and
-delaying your ability to get tax benefits from future NOL carryforwards.
We are bringing the NOL rules to your attention in case you need to do some planning with us. Strategies to consider that can help you get some immediate benefits from your business loss:
Strategy #1: Use a Roth IRA conversion
Strategy #2: Purge your traditional IRA
Strategy #3: Purge gains from property
Strategy #4: Accelerate income
Strategy #5: Fix depreciation errors not in your favor
We specialize in helping clients clarify their taxes so they keep more of their money. Many small business owners who come to see us in Fort Worth, TX are generally unaware of even the basic tax strategies available to them and may find themselves overpaying in taxes.