Tax Plan Analysis: for Business – Carry Back/Carry Forward

Tax Plan Analysis: for Business – Carry Back/Carry Forward

Change in Net Business Loss Carry Back & Carry Forward

If you have a non-corporate business that generates a loss, prior to the Tax Cuts law, you could use any business loss against any form of income including wages, rents, pensions, a spouse’s earnings etc. If the loss exceeds the current year’s income, you get to carry it back up to two years and offset that last two years of taxes. This allows businesses who have losses to be able to get cash for their losses and use this cash immediately when they need it. If the losses exceed the last two years of income, you can carry the loss forward up to 20 years.

The new Tax Cuts law somewhat changes this. Taxpayers can still use losses from a business against any other form of income. However, if the losses exceed the other income for the year, you no longer get to carry back losses except for losses incurred in the trade of business of farming. Losses not used in the year of the loss against other income and incurred after December 31, 2017, get an unlimited carry forward but can only be used up to 80% of taxable future yearly income.

Example: Mary, a single mom, works at a job earning $50,000 a year and has a loss from her networking business of $10,000. She only pays taxes on the net, which is $40,000.

Example: Assume that Mary had a loss of $80,000 but only had other income from the job of $50,000. She would not pay any income taxes on her earned income but gets to carry forward her excess of $30,000 of unused loss from her networking business forever against future income.

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