Monday, May 10, 2010

Net Operating Losses

Q - I suffered a business loss in 2009. Please explain the options to carryback or carryforward the loss?

A - Here is the situation and the choices you have with your 2009 Net Operating Loss (NOL):

You can carryback the NOL two years. This is the default if you do not elect to forgo the carryback and only carryforward. Any of the NOL not taken up by the 2nd previous year (2007 for a 2009 NOL) carries forward to the 1st previous year (2008), then carries forward to 2010 and on for 20 years if not taken up.

If you carryback, you must carry back to the 2nd previous year first: you cannot begin the carryback with 2008 for a 2009 NOL.


You can elect to forgo the carryback and instead carryforward 20 years beginning with 2010.


You may be able to elect a carryback of 3, 4, or 5 years under special rules for 2008 and 2009 NOLs. To make this election, you must have made the election with your filed 2009 tax return. If you already filed your 2009 tax return, you will need to amend your 2009 tax return to make the election. There is a limit of 50% of income offset for carrybacks to the 5th year (2004, for a 2009 NOL). There are other restricts to the 3, 4 or 5 year carryback, which I will be happy to discuss with you.

So, you may be able to begin the NOL in 2004, 2005, 2006, 2007, or 2010, whichever suits your tax situation best.