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Net Operating Losses: The Changes

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Sandy Botkin

Co-founder at Taxbot
Sandy is a CPA, Tax Attorney, and former IRS trainer. He has authored many helpful books on the subject of taxes, including 7 Simple Ways to Legally Avoid Paying Taxes ( Click Here ), Lower Your Taxes: Big Time ( Click Here ), and Real Estate Tax Secrets of the Rich ( Click Here ).
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There were some important changes in net operating losses that all small business taxpayers need to be aware of. First, prior to the passing of the new Tax Cuts and Jobs Act, there used to be a carry back of business losses. Thus, if you had a $50,000 loss in your business, you first could deduct this loss against this year’s income, If it exceeded your income this year,you could have deducted the excess business loss over the last two years against the income from those years. If an excess resulted after the carry back of losses, you could have carried forward all losses to offset the next 20 years of income

Tax reform eliminated the carry back of business losses in the US. Now any business losses that are not used against earnings in the current year can only be carried forward and used up to 80% of taxable income in the future.

The second change is that the carry forward of the losses is indefinite and not limited to the prior law’s limit of 20 years. Thus, if you can’t use up all the losses this year, you get to carry them into future years forever and use them up to 80% of each years taxable income. 

Now you all are an expert on the new net operating loss rules.


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Sandy Botkin

Sandy is a CPA, Tax Attorney, and former IRS trainer. He has authored many helpful books on the subject of taxes, including 7 Simple Ways to Legally Avoid Paying Taxes ( Click Here ), Lower Your Taxes: Big Time ( Click Here ), and Real Estate Tax Secrets of the Rich ( Click Here ).