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Jean   Murray

Do I Get a Refund from My Business Loss?

By March 3, 2010

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I just completed the Schedule C for my sister's antique business, for her personal tax return.  She had a loss for 2009, but the program showed no refund.  Then I remembered:  If you have a business loss, you must have other income on your tax return to offset that loss.  My sister will have other income when she completes the return, but at this point there is no other income, so no refund.

Business Income for Sole Proprietorship

If you are filing on Schedule C for a sole proprietorship, you can't take a business loss that is larger than your other income.  If your business loss exceeds your other income, you can take that net operating loss (NOL) and:

  • Carry it back against profits in previous years, or
  • Carry it forward against profits in years to come

NOL Carryback and Carry Forward

If you have a business loss this year and profits in previous years, you can get a refund for taxes you paid on those prior year profits, using the NOL carryback rules.  My sister has been in business for two years, and she didn't have a profit the first year, so she will have to wait until she has a profitable year, then use the NOL carry forward provisions to get a refund.  The IRS has specific procedures for these carryback and carry forward provisions, so check with your tax preparer if you think you qualify.

NOL Rules for 2008/2009 Losses

The IRS has increased the NOL carryback provisions for losses in 2008 and 2009, to help businesses get refunds for those losses.  You can now carry back operating losses up to 5 years, instead of just 2 years.

For More Information

More on Net Operating Loss Carryback

More on Net Operating Loss Carry Forward

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