What is a Net Operating Loss?
The Internal Revenue Code defines a Net Operating Loss (NOL) as the deductions allowed minus gross income. One part of the deductions allowed is the taxpayer’s share of the business loss. The net operating loss permits deductions allowed under the tax code to be netted against the business income and nonbusiness income.
Under § 172 of the Code, if the taxpayer has a NOL it can be used as a NOL deduction which can be carried back or carried forward and used to offset taxable income in carryback or carryforward year.
A NOL may be present when the taxpayer’s deductions exceed his adjusted gross income and result in a negative taxable income. Typically, a NOL results from losses from a taxpayer’s trade or business.
C.A.R.E.S Act Implications
The CARES Act revived the NOL carryback so that Net Operating Losses can be carried back for up to five years if they occurred in the following years:
Thanks to the CARES Act, many taxpayers that lost money in 2018 and 2019 will immediately be eligible for refunds. Taxpayers that had profits in the years 2015 through 2019 will be looking to maximize their losses and take full advantage of the resurrected NOL carryback.
Specifically in regards to the year 2020, because of the disruption caused by coronavirus and the ensuing economic shutdown, it stands to reason that a significant number of taxpayers will likely have large NOLs.
Who Does the NOL Carryback Help?
- S Corporation
- Trusts and Estates
- C Corporation
NOL Carryback News
Understanding the Difference Between Carry Back and Carry Forward
When utilizing a NOL, a taxpayer historically had the option to carryback or carryforward a net operating loss. Various tax reforms have impacted NOL over the years so the laws on using a NOL change over time. With the passage of the CARES Act into law on
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