SCH C Loss

[Terry D EA]

Schedule C client has a loss of 64K. Income goes negative by 34K. Can this loss be used only to reduce current income to zero and then carry the remaining unused loss forward. NOL?

[jklcpa]

It sounds like you have an NOL. Unless you elect to only carry forward, you have to carry the losses back first.

[Terry D EA]

Thanks Judy. Last year there was a tax due of 1100.00 and no business going further back. So, don't know if I can go back or have to carry forward. I have to leave the office now so I will check on all of this later. Thanks for your help again!

[michaelmars]

I would probably just elect to carry forward, carry backs are a pain.

[kcjenkins]

Terry, use the 1045 as a worksheet to consider whether it's better to carry back or use the Election to forgo the carryback. If you can get him that $1100 back it should be the client's call. With such a large loss odds are he'll need anything he can get back now.

[Terry D EA]

Thanks KC. I did just that and he will be getting back an additional 5500. I didn't fully understand all of the ins and outs with NOLs. I still am quite fuzzy with them but I have a better understanding now. Took my time and carried back the loss to 2011 which all was absorbed that year because he had significant income that wasn't reduced to zero by the loss. I had lost this guy previously for what ever reasons and now he is back because his other preparer (CPA) couldn't get the work done fast enough and I actually forgot that I prepared his 2011 return and had all the information to complete the 1045. I agree with michaelmars that carry backs are a pain but it appears this was the best choice. I don't forsee a loss this large next year. Of course, no one can tell what will happen.

[jklcpa]

Terry, make sure to include a second set of calculations and a 1045 filled out on an AMT basis even if the client wasn't subject to it on the original return or after the carryback. The IRS will ask for that if you don't provide the calculations, and it will delay his refund.

[Terry D EA]

Thanks Judy for the headup and will do. Have a good evening.

[DANRVAN]

You need to help your client decide whether there will be a greater benefit by going forward or back with the NOL. There are all sorts of possibilities.

For example there could have been lower tax rates in the previous two years due to capital gain or offsets by tax credits. Higher rates could be expected in the future due to lower depreciation deductions.

On the other hand, consider the time value of money (cost) by waiting for future tax benefits of a carry forward.

[michaelmars]

also consider if there is anything in the older years where he wants the statute to run out on, filing the nol restarts the 3 years on those returns.

[Terry D EA]

You need to help your client decide whether there will be a greater benefit by going forward or back with the NOL. There are all sorts of possibilities.

For example there could have been lower tax rates in the previous two years due to capital gain or offsets by tax credits. Higher rates could be expected in the future due to lower depreciation deductions.

On the other hand, consider the time value of money (cost) by waiting for future tax benefits of a carry forward.

I am doing exactly that today. There are no skeletons in the closet to worry about. I prepared the pevious returns and know that without a doubt.