The 2018 tax reform made many good changes in the tax law for the small-business owner. But the changes to the net operating loss (NOL) deduction rules are not necessarily in the good-changes category. They are designed to put money in the IRS’s pocket.
OLD Net Operating Loss 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 Net Operating Loss Rules
Tax reform made two key changes to the Net Operating Loss 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.
At Emerald Financial Partners, we have some strategies that may help you realize some immediate benefits from your business loss.