Essentially, a net operating loss or NOL, is generated when a business has more deductions than income.
Under prior rules, a business that had an NOL could carry that loss back only two years for a refund of taxes paid in those earlier years. (The business could also choose to carry the loss forward for up to 20 years.)
The American Recovery and Reinvestment Act of 2009 changed the acrryback period to as many as five years. The new rule applies only to 2008 net operating losses in companies with average annual gross receipts over the last three years of $15 million or less.
Planning opportunities
The carryback periods of either three, four, or five years are elective. That means that the taxpayer can choose how long to carry back the NOL as long as it doesn't exceed five years.
This opens up many tax planning opportunities, especially if taxable income has fluctuated significantly over the years. Not only that, it's a terrific benefit to taxpayers with NOLs larger than could be absorbed over the traditional two-year period.
As an alternative to carrying the loss back to prior years, you can still elect to forgo the carryback althogether and simply carry your losses forward to reduce future taxes.
Remember that the new NOL rules are elective, and you may choose to carry losses back as you see fit for up to five years.
There are filing and time restrictions on this tax break for businesses, so contact us if you need details and filing assistance.
Kenneth Reid, ATP, CPB, CPP
President
MasterType Accounting & Business Services, P.C.
http://mabspc.com
mastertype@mabspc.com
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